If you’re at all interested in what’s going on in the housing market, then you’ll likely be considering when to either buy, sell or refinance an existing mortgage. Depending on where mortgage rates are heading, it could either be a good time to buy, sell or refinance.
When to Refinance
The best time to refinance is either when rates are remaining the same or when they are dropping. Depending on when you purchased your home, the interest rate on your mortgage may be higher than the historic lows of the past several years. If that is the case, then there are many strong incentives to refinance.
The general rule of thumb is that if you can shave off at least 1 percentage point on your interest rate with a refinance, then it’s worth it to refinance. Interest rates have been just above 4% on 30-year fixed rate mortgages for a good amount of time.
What’s important to keep in mind also is where rates are likely to be heading. Most mortgage experts expect rates to climb in the second half of the year. The Federal Reserve’s decision to tapper its bond buying program has a lot to with this. This means that in some sense the window of time for many homeowners to refinance is closing.
Another important factor in determining when to refinance is the nature of the interest rate that you have on your loan. Variable interest rates can change with market conditions and therefore can be risky. You should ask yourself whether you will be able to continue making mortgage payments if your rate were to go up significantly. It may be worth your time to switch to a low 30-year fixed interest rate so that even if rates go up in the future your payments won’t be affected.
When to Buy or Sell Your Home
Falling or stagnant interest rates also indicate a good time to sell or buy a new home. A borrower’s buying power has been historically strong at times when rates either remain the same or are dropping. However, this assumes that you have good credit and are therefore able to qualify for a low interest loan.
If, for example, you want to buy a house for $300,000 with a conventional loan at 20% down on a 30-year fixed interest rate at 4% this would cost you %1,145.00 per month. Should you wait for an extended period of time when rates are hovering around 6% then your monthly payments would go up nearly $300. Over the course of one year alone, that’s nearly an extra $3,600.
What you should also consider is where home prices are heading. If you own a home in a large metropolitan area, then chances are you’re in luck if you want to sell. Home prices have been on the rise in many areas of the country. But there are some less densely populated cities where home prices have actually fallen. If you want to know approximately what your home is worth, try to find similar homes where you live and see what they are selling for.