The REAL cost of refinancing now.

For years, banks have been waiting on this upcoming “refi boom.”  They beefed up their staff from sales to processing and underwriting so they could be ready to capitalize. But this big refi window has been elusive…it was predicted, teased, and sometimes even materialized but then disappeared after literally hours. Why do you care? Because now that rates have dropped into the 5’s – the scammers are OUT, and they are desperate to not miss their moment. I’ll share how to protect yourself. 

A mortgage is a tool; this is something the financially secure understand. A refinance can and should be a strategic move. Sometimes it is as simple as reducing your monthly payment through a drop in interest plus the removal of mortgage insurance. Other times you change your loan term – maybe to an ARM or a 15-year fixed. Then there are the instances where you pull cash out to consolidate debt or make home improvements. All viable strategies you should consider if you have the benefit of being a homeowner. 

So where do things go wrong?

There are some other “side benefits” of refinancing. You get a refund of your escrow balance – the account that pays your taxes and insurance. You get to skip one, maybe two months of mortgage payments. Predatory lenders will lean in on these “side benefits” as a main attraction of refinancing. Maybe the interest rate drop isn’t enough for you to meet real net tangible benefit…so they’ll hide a couple points in your new loan amount, so the monthly savings look better. This means your interest rate is dropping more but you’re paying for it. 

Another sticky part of this is that the rate you are quoted today could very well be gone tomorrow. We’ve seen major improvement in interest rates in anticipation of a Fed rate cut and in response to weak job numbers. Inflation is working hard to send mortgage bonds in the wrong direction. The Fed might say something fickle about future rate cuts. Then the doors on this window slam shut. 

Which is why I don’t think you should gamble. Here’s how to analyze if now is the right time to refinance and if so, take advantage of it quickly. 

Closing Costs 

Ideally, the bank fees you are paying are very minimal. Processing and underwriting should be under $1,000. I also don’t think you should pay more than 1 point in origination to buy down your rate. Why? I think interest rates will continue to trend down. I just think it’s going to be a long, bumpy road. I don’t want you to spend a bunch of points to buy a rate that could be available for free in the near future. 

Should you wait for the bottom? 

If interest rates are going to continue to improve, why refinance now? I do not have a crystal ball. They could go right back up to 7%. These are wild economic times we are living in. I don’t think they will, but I think we are 18-24 months away from any sort of bottom on interest rates. It may not make sense for you to pay an extra point of interest each month while you wait for the “bottom” of this circle. Let me be crystal clear in my advice here: It’s ok to refinance now even if you are going to refinance again in a couple of years. You have to make the best decision you can with the information you have available. When new information becomes available, you can make another good decision. What I’m telling you is it’s not ok to pay a bunch of points to refinance now. 

That’s a bad financial move. 

Ask your lender for an analysis that shows your monthly savings and then your true net savings over the next 5 and 15 years, after taking into account any cost incurred by refinancing. 

Here’s when not to refi: 

When the increase to your loan amount will not pay for itself in terms of monthly savings within the next five years. Simple right? 

If it still feels overwhelming, I’m happy to create a personalized analysis for you. I will shoot you straight on if this makes sense right now or if we need to set a target and continue to watch the market. 

The media is going to continue to be on a delay when it comes to interest rates. But the spam calls and emails and flyers in your mailbox are going to get more and more aggressive in the coming weeks. So I’m here to help make sense of it all.