Even in the present rate environment, some homeowners can still save money with a refinance. Getty Images
As soon as the Federal Reserve hiked its benchmark interest rate by 0.75 percentage points, questions arose regarding its potential impact on the personal finances of millions of Americans.
“Reducing inflation would require a sustained period of below-trend growth and a softening of labor conditions,” Federal Reserve Chair Jerome Powell stated at a press conference on September 21.
Powell continued, “We will persist until we are certain that the task has been completed.”
This is bad news for homebuyers, especially since the average 30-year mortgage interest rate reached 6% earlier in September — its highest level since 2008. Additionally, mortgage refinance rates are on the rise, averaging about 5.5 versus 2.15 percent a year ago.
An increase in interest rates may help control inflation, but they do not necessarily benefit consumers.
That does not, however, preclude the possibility that certain homeowners could still benefit from mortgage refinancing. Despite the rate increase, certain homeowners can still save money through refinancing.
Immediately consult a mortgage consultant if you believe you could profit from refinancing, or if you simply want additional information about the potential advantages.
Here are three sorts of homeowners who may benefit from mortgage refinancing.
Owners with high mortgage interest rates
Particularly during the pandemic, mortgage rates were at historic lows. However, if your interest rate is more than 6 percent, you may benefit from refinancing your mortgage in the current rate environment. Often, the optimal moment to refinance your mortgage depends on your own circumstances and preferences.
Keep track of Freddie Mac’s weekly interest rates to compare them to your own. Most professionals would advise you to accept a rate that is a full point lower than the one you presently have if the opportunity presents itself. Even a half-point reduction may be worthwhile, especially if your first mortgage loan was substantial.
Review the numbers and perform the necessary calculations. There may be opportunities to save money.
Those homeowners who wish to pay off their mortgage early
The 30-year mortgage is the most common since it allows for more reasonable monthly payments. However, it takes decades to repay the loan (assuming you make standard payments and do not make bi-weekly installments).
However, what happens if you wish to repay your debt early? A home refinance loan may be worthwhile if you inherit a substantial quantity of money or just wish to reduce your largest monthly expense. By reducing the loan term, you will be able to pay off the debt and develop home equity more quickly.
However, exercise caution Reducing the length of your loan may result in higher monthly payments, albeit for a shorter duration.
Consult with a mortgage refinance professional for guidance.
Homeowners desiring to cancel their PMI
If you initially paid less than 20% of the home’s worth as a down payment, your lender likely added private mortgage insurance (PMI) to your monthly payment. If the value of your house has risen since the time of purchase, you may be able to renegotiate your mortgage to eliminate this payment.
If you own a home in an area where property prices have increased, you may be paying private mortgage insurance (PMI) unnecessarily. Refinancing could assist in eradicating it. Just make sure the numbers add up (you wouldn’t want to refinance to eliminate a $80 PMI only to see your monthly payment increase by $160).
A mortgage professional can help you evaluate if you qualify for a loan.
The current status of mortgage refinancing
Current mortgage rates and mortgage refinance rates are significantly less favorable than they were in 2020 and portions of 2021. However, if inflation does not moderate, the current interest rate environment may be the best homebuyers and homeowners can hope for in the near future. Therefore, do not discount the possible benefits of refinancing, especially at this time.
Not sure if the moment is perfect for you? Consider working with a helpful online financial consultant.