The refinance opportunity that emerged during the pandemic is slipping away as mortgage rates hit 17-year highs. While the market may have paused with many capitalizing on low rates in 2020 and 2021, it’s wise to consider refinancing again when rates drop by at least 0.5%. To make it worth your while, aim to break even on the refinance costs within two years.
Getting a no-cost refinance can be an immediate money-saver. Be aware, though, that lenders need to profit too, so costs might be integrated into your new rate. The larger your mortgage, the lower your explicit refinance costs tend to be, making it possible for some to enjoy “no-cost” refinancing where fees are wrapped into favorable rates.
Always crunch the numbers before committing to financial decisions, especially refinancing. It’s crucial to assess the benefits against the potential costs.
From the perspective of a mortgage holder, you’re also essentially a bond investor. If you refinance a $100,000 loan to a 3% 5/1 ARM when the 10-year yield is at 2.15%, and it rises to 3.2% the next year, 5/1 ARM rates could rise to about 4%. This means you’ve preemptively locked in a lower rate effectively benefiting from the market change as banks would prefer you refinanced at the new higher rate.
Viewing this through a longer lens, even a 10-year peak of 3.2% is low compared to the historical highs around 5%. Historical data shows yields were low even during the financial crisis, remaining stable due to central bank actions, underscoring the influence of monetary policy on borrowing costs.
For those considering refinancing, it’s crucial to stay informed and ready to act when conditions are favorable. The right time to refinance depends on matching the loan’s term to your financial stability and risk tolerance.
Currently, I’m managing my mortgages with an eye on interest rate trends, opting for refinancing when beneficial. I’m also investing in bonds as a hedge against potential equity market downturns, balancing my portfolio against fluctuating rates and stock market changes.
For those exploring mortgage options or real estate investments, consider all available avenues. From refinancing opportunities to real estate crowd investing platforms like Fundrise, diversifying your investment strategy can provide stability and potential growth. Always shop around for competitive mortgage rates to ensure you’re getting the best deal before the refinancing window closes.
