For years, we saw mortgage rates that were almost unbelievable. They were in the twos, threes, and fours. That wasn’t normal. That was the Federal Reserve and central bankers around the developed world using extraordinary measures to suppress interest rates on both savings and loans to pull the global economy out of the Great Recession.
Once the crisis passed, interest rates normalized. And then, due to the high inflation we’ve experienced, rates soared from those lows into the ugly seven percent-plus range.
Mortgage Rates Are Finally Falling — Is It Time To Refinance?
The economy is slowing down. We’re in a lower gear economically, with some states already seeing recession-like conditions and jobless numbers ticking up. This slowdown is doing something interesting to the mortgage market: Mortgage rates are falling due to market forces alone, not government intervention.
If you are one of the many people who bought a home with those high seven percent-plus interest rates, you now have an opportunity to refinance. But it’s not for everyone; instead, it’s a narrow opportunity that requires you to check a few specific boxes.
The Narrow Refinance Opportunity
If you’re going to refi today, here is the opportunity I see, and why it’s so specific:
- The target rate: You could potentially get a 15-year loan at around 5.5%.
- The catch: To make this work, your payment on the 15-year loan will be somewhat equivalent to, or perhaps just a nudge higher than, the payment you have right now on your 30-year mortgage (with 27 or 28 years remaining).
This is why the criteria are so narrow:
- You must be able to afford the payment on a 15-year loan, typically requiring more cash flow.
- You need meaningful equity in your home, which means you were likely someone who made a good down payment when you bought the home at the higher rate.
If you fit this description, this move would get you out of debt much, much quicker at a lower rate, and you wouldn’t feel a big jump in your monthly payment. Yes, it makes sense.
Shop Hard for the Best Deal
Right now, lenders have very little mortgage activity. They are hungry for business, and that works in your favor.
Because of the lower pool of loans available, lenders are competing harder than usual. Get quotes from multiple places.
You will likely find that the origination costs involved in getting this new loan are less than they would have been otherwise, thanks to this increased competition.
When Is the Right Time To Refi?
Predicting interest rates, especially in the short term, is very difficult. However, with the economy slowing down, it’s pretty favorable that rates could continue to go even lower from here.
My rule for refinancing is simple: If it is clear that you will save a meaningful amount of money by doing the refi, that’s your time.
Tip: Use our Mortgage Refinance Calculator to run your numbers.
Don’t try to time the absolute bottom. If you lock in meaningful savings today, you’ve won. And guess what? If rates were somehow to go significantly lower in the future, you just refinance again! There’s no rule that says you can only refi once.
