Mortgage rates rose to 2.99%, staying just barely below 3%, where they’ve been for over a month.
Mortgage and refinance rates have been bouncing around within a similar range for a number of weeks. And this trend looks like it will continue. “We should see rates stay around that 3% mark for the next six months or so,” says Castleigh Johnson, founder, and CEO of My Home Pathway, a digital financial coaching platform.
As long as the current mortgage interest rates stay near today’s historically low levels, that’s good news for borrowers. But in the long term, some experts forecast rising rates. While there are many factors influencing rates, overall, a stronger economy usually coincides with increasing mortgage rates.
Even with access to favorable rates, homebuyers are facing other challenges. Demand for homes is much greater than the current supply, which has led to bidding wars and escalating home prices. “There are so many qualified buyers who are on their 10th and 11th and 12th offer and just can’t get [their offers] accepted,” says Michael Becker, a Maryland-based sales manager with Sierra Pacific Mortgage. And for many buyers, the benefit of low rates is offset by rising home prices.
But for homeowners looking to refinance, today’s inflated home prices will work in their favor. “This latest increase in value may be opening the opportunity [to refinance] for those who were upside down or got a crazy [loan],” Becker says. Your credit score and home’s equity factor heavily into what rate you qualify for, so having more equity could even help you get a lower rate.
Even homeowners that took advantage of forbearance may still be able to refinance. You could be eligible to refinance as long as you’ve caught up on your back payments or modified your existing loan and have made three timely payments, Becker says.
But before you move forward with a mortgage refinance, it’s important to understand when to refinance.
What to Think About When Refinancing
If you were unable to refinance last year but have since improved your financial situation, now is a great time to refinance, Johnson says.
Typically, refinancing can be a good move if you’re reducing your interest rate by around 1%. “Anybody [with a mortgage rate] in the mid-threes or higher should be looking to refinance,” Becker says. And you could also lower your rate with a shorter-term loan like a 15-year refinance.
If you can afford the larger monthly payments that come with a 15-year mortgage, you could reduce your rate even further. “You might be able to get 2.5% to 2.375% on a 15-year note,” Becker says. But Becker is quick to point out that he wouldn’t commit to a 15-year loan’s larger monthly payment unless you’re in a financial position to handle it. It’s important to consider your bigger financial picture outside of just your mortgage’s interest rate, such as your emergency fund and retirement savings.
The final piece of the puzzle is that refinancing isn’t free. You’ll typically pay closing costs that can range from 3% to 6% of your outstanding loan balance. For the average homeowner, that’s thousands of dollars in upfront fees. So two loans may have the same interest rate, but the best mortgage lender for you could be the one that’s charging fewer fees.
When you’re deciding if refinancing is the right move, consider how it improves your overall situation and if the savings will outweigh the cost.