Interest rates have played a significant role in shaping the housing market in recent years. From record-low rates at the beginning of the pandemic to now facing higher mortgage rates, homebuyers and sellers are navigating a challenging landscape.
For homeowners who secured a low rate during the earlier period, staying put might be the best option. But for those who missed out, the question of when to refinance their mortgage becomes crucial.
Here are some key considerations to help you determine the right time for you.
Review Rates, Terms, and Closing Costs
While we may not return to the historically low rates we saw a few years ago, a decline in rates is anticipated. When considering refinancing, it’s not just about chasing the lowest rate available.
If you’re ready to refinance, keep an eye on average interest rates and discuss your options with your lender. Even a modest decrease in your rate could result in significant savings over the loan’s duration, depending on your circumstances.
Evaluate different loan terms to find what aligns with your financial goals. Refinancing into a shorter-term mortgage may lead to higher monthly payments but could ultimately save you on interest payments.
Additionally, factor in how long you plan to stay in your home. Refinancing incurs closing costs, so it may not be worthwhile if you don’t intend to stay put for a few more years. Calculate your break-even point to make an informed decision.
Evaluate Your Property Value and Equity
With property values on the rise, it’s essential to assess your home’s current value and the equity you’ve built.
Building more equity can lead to better refinancing terms. If your home’s value has increased over the years, it could be a good time to explore refinancing options, especially if rates drop.
Keep an eye on your equity levels, as reaching 20% equity can help eliminate private mortgage insurance, reducing your monthly costs.
Get Your Finances in Order
Just like when buying a home, having your finances in order is key to a successful refinancing process.
Lenders will assess your credit score and debt-to-income ratio, impacting the rates and terms you’re offered. Improving your credit score and reducing your total debt can lead to better refinancing options in the future.
Deciding when to refinance involves more than just monitoring interest rates. Consulting with your lender can provide insights into your best options based on your financial situation.
About the Author – Jeffrey M. Ruben
Jeffrey M. Ruben is the President of WSFS Mortgage. With a background in financial and legal institutions, Jeff brings a wealth of experience to the mortgage industry. As a licensed real estate attorney, Jeff is dedicated to helping individuals navigate the complex world of home financing.