The trending headline right now is the strong possibility that the Federal Reserve will be cutting rates soon. While we embrace this news, the question as to when is the best time to refinance arises. On the surface, it may seem like an easy decision to wait for the rate cut before purchasing or refinancing but there are other factors to take into consideration.
For starters, the market is already “baking” in the expectation that the Federal Reserve will cut rates. That means if/when they make the announcement, mortgage rates won’t necessarily drop instantly. In fact, if the Fed cuts its rate less than the market expects, we could even see the opposite effect of interest rates increasing. We typically advise borrowers to consider refinancing when they can improve their rate and loan term by approximately .50% or more (this is a rule of thumb and can vary for each borrower depending on their situation).
Another thing to consider is what a rate cut could do to market demand if you are looking to buy a home. As rates come down, more potential buyers will jump back into the market since they can qualify for a mortgage loan more readily.
The estimate is that for every 1% drop in mortgage rates, 5-8 million new homebuyers enter the housing market. This means more competition for home sales, which results in increasing housing prices.
Ultimately, the right time to purchase a home or refinance a mortgage is when it makes sense for you. There will always be another event happening that will affect the real estate and mortgage markets. If you worry about waiting for the perfect moment, you’ll always find an excuse not to act. The right time to buy is when you are ready to take on homeownership and when the right home comes onto the market. Even if rates are expected to decrease later, that home may not be on the market later.
If you have questions about getting pre-approved or refinancing your current mortgage, give us a call and talk to one of our Mortgage Loan Originators.
