Is Now the Time To Refinance? Experts Weigh In on Mortgage Rate Trends
On March 9, Forbes reported that the average APR for a 30-year fixed refinance loan rose from 4.05% to 4.10% over the week before. That’s still low, historically speaking, but for anyone who’s hoping to trade their current mortgage for something better, it’s hard not to pine for the good old days of the pandemic, when interest rates hit record lows and refinancing activity hit record highs.
Those heady days of dirt-cheap borrowing feel like a lifetime ago. The Washington Post reported as early as January that mortgage rates were nearly back up to their pre-pandemic levels, and they’ve only risen higher since.
So, has the window closed, or is refinancing still a smart move? GOBankingRates asked the experts.
You Didn’t Necessarily Miss the Boat, but …
In January 2021, rates for a 30-year fixed mortgage hit a pandemic bottom of 2.93% — that’s a tough pill to swallow for anyone considering swapping loans now that rates are back up over 4%. So, is now the best time to refinance?
“The best time to refinance would have been months ago when mortgage rates were historically low,” said Omer Reiner, a licensed realtor and president of FL Cash Home Buyers, LLC.
There’s no doubt that the last year has erased much of the incentive for millions of borrowers.
“Mortgage rates have increased by almost a full percentage since the beginning of 2022,” said Aaron Cambden, director of Fairview Estates. “Meaning fewer homeowners are in a position to go through with refinancing. There’s no harm in asking for a quote or inquiring, but in general, the benefits of refinancing have shrunk drastically.”
Rates Are Still Low, but There Are Other Reasons To Refi
There’s no doubt that most people refinancing today will pay more than they would have a year ago — but the glass is still half full. The Fed is set to raise interest rates despite the crisis in Ukraine, according to NPR, and rates are expected to continue rising all year long. In a few months, you’ll wish you had pulled the trigger today.
“Right now may be the best time to refinance your mortgage,” said Kenneth Reed, a real estate investor at Better Home Buyers. “Rates are slowly on the rise, and very soon, they’ll be back at their original position. If you take your time, you’ll miss this small window.”
The time might be right even if you’re not pursuing lower rates.
“With property values continuing to increase, it may make sense to refinance and drop private mortgage insurance (PMI) or do a cash-out refinance while interest rates remain low,” said Jessica Wade of The Wade Team at BKG Real Estate. “We are beginning an upward trend with mortgage rates this year and that is currently the expectation for the remainder of 2022.”
You might also refi while rates are still low “to remove a co-borrower from the mortgage,” said Eric Jeanette of Dream Home Financing.
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What’s To Be Gained by Refinancing?
Rates aren’t the lowest they’ve ever been, but they’re far from terrible in the context of decades.
“Although we have seen the interest rates creep up slightly in the last couple of months, current interest rates are still rivaling 50-year lows for a 30-year fixed mortgage,” said Brian Chandler of RE/Max Alliance Parker Colorado. “If your interest rate is three-quarters of a percent above the existing 30-year fixed mortgage rate or currently over 4.75% interest, you should seriously consider refinancing your home mortgage.”
Refinancing today might provide a few other opportunities, as well.
“Firstly, you have an opportunity to reduce your monthly mortgage payment and lock in a lower interest rate,” said Chandler. “This will offer long-term stability to your financial portfolio. Secondly, you may be able to pull equity out of your home for personal or home Improvement expenditures while keeping your monthly payments the same or relatively close to it.”
Now might be an especially good time to refi if you can use the opportunity to lock in low rates and shorten the term of your loan at the same time.
“Many people are opting to reduce their 30-year mortgage term to 15 years,” said Chandler. “Opting for this term reduction will usually increase the mortgage payment slightly. This is offset by the more rapid reduction in principal with less interest paid over the life of the loan.”
If you’re not moving to a 15-year mortgage or otherwise reducing the term of your loan, you could wind up resetting the clock just as your payments are finally starting to chip away at the principal. And, according to Reiner, “Homeowners should note that refinancing usually costs 3% of the loan, sometimes even more.”
A poorly timed refi, therefore, can do much more harm than good. “You lose thousands of dollars in closing costs, you extend your debt horizon years into the future, and you restart your amortization schedule from the beginning,” said Brian Davis of Spark Rental.
In the end, refinancing is only and always a good idea if it will improve your household’s unique situation.
“The best time to refinance a mortgage is when it makes the most sense for the homeowner,” said Jason Gelios, an award-winning realtor in Southeast Michigan and author of “Think Like a REALTOR.” “While it’s important to take into account the current interest rate, it’s all about what the homeowner is looking to do, i.e. lower their payment, pay off debt with equity, or lower their current rate. Every homeowner will have a different motivation for looking into a refinance.”
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