Is Now a Good Time to Refinance a Mortgage?
In December the U.S. Federal Reserve hiked short-term interest rates for the first time in nearly a decade, bumping up its benchmark rate by 0.25 percent.
This, in turn, raises a question for many homeowners — with interest rates potentially on the rise, is now the time to refinance their mortgages?
Well, it depends, says John Hudson, vice president at San Antonio, Texas-based Mortgage Financial Services and communications chair at the Association of Mortgage Professionals.
The first thing to keep in mind, Hudson notes, is that while the public often perceives the Fed’s benchmark rate as being directly linked to mortgage rates, in fact, there’s no direct correlation between the two. And so, while he and other mortgage professionals have seen an uptick in customer interest in refinancing since the December rate bump, that hike doesn’t necessarily mean it’s now or never.
“I see a lot of Internet and radio advertisements right now saying, ‘Hey, even if you refinanced in the last couple of years, call us today and see if we can refinance you again,’” Hudson says. “And I would say, well, that doesn’t really make a lot of sense because given the cost [of refinancing] that is typically being rolled back into a consumer’s loan amount, it’s not going to have a long-term financial benefit for that consumer.”
That said, there are certainly homeowners who could benefit from refinancing. For instance, Hudson says, “If there are consumers out there who are still paying rates above 4.5 percent on a 30-year mortgage fixed-rate mortgage and they want to lower their payment, then, absolutely, now is a great time to refinance.”
That’s particularly the case for homeowners who plan on being in their current residence for at least the next seven years, he adds. Those expecting to move in the short term, on the other hand, might be better off saving the money they’d spend on refinancing closing costs to put toward their next housing purchase.
A ‘Booming’ Refinancing Business
The refinancing business has boomed in recent years as homeowners have taken advantage of historically low mortgage rates. According to financial site NerdWallet.com, between 2010 and 2013 more than 70 percent of mortgage applications were for refinanced loans.
And, a recent NerdWallet.com analysis of mortgage data from Black Knight Financial Services suggests that currently as many as 5.2 million homeowners could benefit from refinancing their mortgages.
Whether an individual homeowner will benefit from refinancing, though, is a question best answered on a case-by-case basis, Hudson says.
“My advice is at the end of the day for consumers to shop around, find a local mortgage professional that they can go and sit down with, and run through all of the options,” he says.
Hudson also suggests that homeowners not react too strongly to short-term swings in mortgage rates.
“The massive swings that we have in the stock market right now, and the [falling] price of oil and the geopolitical events, that does create a lot of short-term volatility,” he says. “So mortgage rates may spike up and down from day to day, but the trending average line is pretty steady, and it is hovering around 4 percent.”
“Historically, mortgage rates are still at near all-time lows,” he adds. “Will they move up? Eventually. But in the next month or two? Probably not.”
The purpose of the discussion above is for the reader’s general information only, and such information does not necessarily reflect the opinions of Mortgage Financial Services or the Association of Mortgage Professionals. Similarly, this article does not reflect the views of Fannie Mae, and Fannie Mae does not endorse the positions or opinions noted herein.