The One with the Interest Rates
Do you feel like interest rates keep your head spinning? In two years time we saw clients at our closing table lock in interest rates ranging from 2.5% to 8%. We saw rates stabilize at the beginning of 2023, which brings up the question of what to consider before you refinance.
If you are one of the fortunate buyers who purchased when interest rates were historically low (many below 4%), there is probably no need to consider refinancing purely for interest rate purposes; consider yourself well set for the future. You may still choose to refinance or do a HELOC on your home in order to cash out some or all of the equity in your home.
For the rest of us, there are several factors to consider in making the decision to refinance your mortgage:
Watch the interest rate. The main rule of thumb is that you should only refinance if you can lock in a rate that is lower than your current rate by .75%.
Closing costs. You should only refinance if you plan on staying in the home long enough to receive the benefit of the lower interest rate, given that you will have to pay closing costs. These costs average $3,500 to $4,000 depending on loan amount and other factors. How long it will take to recoup these costs will depend on the amount of the mortgage and the reduction in the interest rate you can secure.
The condition of your personal finances. Most lenders require a credit score above 620, 20% equity value in the property, and a debt-to-income ratio above 43%.
DISCLAIMER: I am not a licensed loan originator or a finance expert. A great lender can help you talk through these factors to decide if a refinance is right for you. If you do choose to refinance, you will need a good title attorney so be sure to give us a call!
We’ll see you at the closing table!
