What You Should Know
High mortgage interest rates can make buying or refinancing a home challenging. But for homeowners looking to refinance, there are strategies you can consider. For example, mortgage rates typically fluctuate based on market conditions, so the timing of your refinance can make a big difference in your new monthly payments. In this blog, we will discuss what you should know about timing your home refinance.
Why Do Rates Fluctuate?
Mortgage rates are tied to the Federal Reserve, or “the Fed,” the U.S. central banking system. In recent years, the Fed has been increasing interest rates to help control rising inflation, with the last increase being in 2023. According to Bankrate.com, the 30-year fixed mortgage rose to above 8% in October 2023. As inflation begins to drop, the Fed plans to cut rates, which will most likely result in a drop in mortgage rates.
If you purchased your home in the past few years, chances are you will have a high interest rate. As rates drop, this may be a good opportunity for you to refinance. Refinancing to a lower rate means lower monthly payments, which saves you money.
What To Watch Before You Refinance
Before jumping into your refinance, do your homework on interest rates. Shop around and use online calculators to determine various refinance rate scenarios to see if any of them makes financial sense for you. These calculators are generally easy to use and you can also include fees in the formula.
According to Forbes Advisor, if the current rates are lower than what you currently have on your mortgage, it might be a good time to refinance your loan. A good rule of thumb is to wait until rates are at least 1% lower than your current rate before you refinance.
What Are the Qualifications To Refinance?
There are a few things to consider before you refinance, depending on the type of loan you have. According to CNBC.com, each type of loan program has requirements that must be met before you are able to refinance the loan.
- FHA or VA Loan: To refinance one of these loans, you must have made six monthly payments on your mortgage and have owned the home for more than 210 days.
- Cash-Out Refinance: To do a cash-out refi, you must have owned the home for at least 12 months and have 20% equity in the home’s value.
- Refinancing a USDA Loan: Refinancing this type of loan requires that you have paid your mortgage on time for 12 months, depending on the type of refinancing.
If you are unsure which scenario you fall under, speak to a trusted lender such as Travis Credit Union to see what options are available based upon your unique financial situation.
Cost of Refinancing
Similar to when you first purchased your home, there are costs associated with. The average closing cost ranges between 2% and 6% of the new loan amount, according to CNBC.com. Closing costs include origination fees, underwriting fees, government recording fees, appraisal fees, credit report fees and more.
It’s important to review your loan agreement thoroughly before you sign, so you’re aware of every fee that’s being charged for your refinance. Shop around if you’re not satisfied with the agreement.
Shop the Best Rate
Shopping for the best rate requires you to keep a close eye on the mortgage market. The best rule of thumb to follow is if rates are lower than what you currently have by at least 1%, it is OK to refinance.
A good way to stay on top of the mortgage landscape is to monitor rates from your favorite lenders and act when you think it is right for you. Before you apply, however, check your credit report to ensure that there are no issues which could lower your credit score and make it harder to get the rate you want. You can get a free credit report each year from AnnualCreditReport.com. Having the highest credit score possible will let you refinance for the lowest interest rate possible, according to Forbes Advisor.
Rate shopping with different lenders will allow you to make the best refinancing decision possible and allow you to stick to the best timing, both of which will save you money.
How TCU Can Help
Travis Credit Union offers homeowners and future homebuyers resources to help them with their home loans. The TCU Mortgage Hub is a great place to start. Our knowledgeable mortgage loan consultants will listen to your needs and identify the best refinance option for you. Along with home loans, TCU can also help you with auto loans, credit cards and an array of savings products so you can grow your wealth. Travis is focused on helping you reach all your financial milestones, so visit us at a branch or online to see what TCU can do for you.