With mortgage rates rising and falling, homeowners are considering whether to refinance or buy a different home. Mortgage rates have trended downward over the past few months, hitting a 10-month low earlier in August. They ticked up just a bit last week, giving experts reason to tell all homeowners — those who are refinancing — to be more strategic with their bidding.
Melissa Cohn, regional vice president of William Raveis Mortgage, urges borrowers to focus on the right timing when they are thinking about refinancing. She recommends that prospective homebuyers or homeowners refinancing their mortgage wait until mortgage rates have “fallen deeply enough” before jumping in to realize measurable savings. This is because mortgage rates closely track the 10-year Treasury yields, which are most sensitive to a surprise change in economic outlook. As such, keeping abreast of these trends is vitally important for homeowners considering a refinance themselves.
The fiscal climate is about to change dramatically. While they can still benefit, a potential Federal Reserve rate cut this fall would open up new opportunities for homeowners stuck in expensive mortgages. Most of these homeowners have already taken advantage of the optimal conditions and refinanced in the past several weeks, looking to reduce their monthly payments.
Cohn advises that homeowners should ideally have at least 20% equity in their homes to secure better loan terms from lenders. According to Bankrate, 20 percent equity is the sweet spot for refinancing. That can lead to improved rates of interest and greater flexibility of lending requirements.
Keith Gumbinger, vice president of HSH, agrees that there should be a desire for careful planning and preparation before starting the refinancing journey. He states, “Getting the preparation done beforehand will allow you to move quickly.” Gumbinger cautions homeowners against calling lenders immediately. Rather, he argues that members should take the time to do research beforehand to streamline the process.
The onus is on homeowners to really research their options when they refinance. In either case, securing the best possible rates and terms is essential for a profitable move. The cost of refinancing can vary a great deal depending on the circumstances. Bankrate estimates that appraisal fees typically run between $300 to $500 and credit check fees frequently remain under $30. Having a clear picture of these costs can allow homeowners to make smart decisions about refinancing.
As we’ve seen in recent months, the relationship between mortgage rates and other economic indicators have played a huge role in shaping homeowner choices. The 10-year Treasury yield is a key driver of mortgage rates. Instead, it always tends to just follow the prevailing economic state and the mood of investors. The more homeowners pay attention to these yields, the more they’ll know when to jump into action.
As changes in the economy accelerate, it’s more important than ever for homeowners to stay on guard and one step ahead. A possible Federal Reserve rate cut would significantly change the refinancing landscape. It would shift the incentives for those considering their options.