FILE PHOTO: A newly constructed single family home is shown as sold in Encinitas, California, U.S., July 31, 2019. REUTERS/Mike Blake/File Photo
March 4, 2020
By Beth Pinsker
NEW YORK (Reuters) – When Kristin Tassi bought her house in Chicago two years ago, she was disappointed to get an interest rate of 4% on her mortgage. All of her friends had lower rates.
Experts said rates were on the way up from that point forward, but Tassi could not stop obsessing about the numbers game. (https://reut.rs/2wwhC0d)
Fast-forward two years: Tassi, a 35-year-old public relations executive, is getting unsolicited offers in the mail to refinance at 3.25% – and that was before the Federal Reserve cut borrowing costs by half a percentage point in a surprise move on March 3.
As the U.S. central bank’s move slowly gets priced into mortgage rates, there will likely be more drops.
“I’m pretty sure at 3%, we can’t say no,” Tassi said. “But what about next week, or the week after? I don’t know when the right time will be.”
Mortgage experts caution homeowners not to try to time the market. But with surprise global economic factors, including trade wars and the coronavirus outbreak, Zillow’s director of economic research, Skylar Olsen, said the current theme for interest rates is: “We don’t know.”
The decision about whether or not to refinance and at what rate comes down to your own personal financial situation. If you are trying to lower your monthly spending now, then refinancing even half a percentage point can work magic on your budget.
Just be aware of the fees involved – usually several thousand dollars, which either need to be paid directly or added to the loan. You also add time to your mortgage. And if you are cashing out any equity in the process, you will owe more overall.
George Burkley, an independent mortgage broker in Indiana, was scrounging for decent rates for clients two years ago. Now he has a bucket next to his desk with 43 files ready for do-overs as he is systematically culling through all of the mortgages he booked at more than 4% rates of interest.
This week, Burkley was able to help a friend consolidate his first and second mortgages plus credit card debt, and turned around his cash flow by $1,700 per month.
“I told him, now you can work smarter, not harder,” Burkley said.
If your goal is to get out of debt sooner or save costs over the long-term, think about shortening your loan term to a 15- or 20-year loan instead of the more common 30-year mortgage. You could get rates below 3% now, depending on the circumstances.
This move is not for everyone, however, because shorter loans come with higher monthly payments, even if the rates are lower. If you are not planning to stay in your home past the time your payments end, then you might not enjoy the benefits of speeding it up. In the meantime, you might have been able to use that extra monthly money for other uses, like building an emergency fund or saving for retirement.
“Once you’ve committed, you can’t make a change easily or without cost,” warned Keith Gumbinger, vice president of HSH.com, a mortgage information website.
Of course, whether or not you will ever have a chance to get such low rates again is a hard game to play.
“If this was just quick correction, and we’re heading back to steady and slow growth, that’s one thing. If there’s a recession, we’ll see,” Olsen said.
But then again, “It’s amazing how often these once-in-a-lifetime things happen,” Gumbinger said.
(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance. Editing by Lauren Young and Paul Simao)