To Buy, Refi… or Wait?: Mortgage Rate Updates
While rates seem high now, they are relatively low from an historical perspective. In 1981, the 30-year mortgage rate peaked at 18.4% according to Freddie Mac. From 1971 to today, mortgage rates averaged 7.74%.1
The Federal Reserve, which sets interest rates, has indicated they may cut rates later this year. Does this mean you should wait until they’re cut to buy a house? Not really. The biggest consideration should be if you can afford both the monthly payments and the upkeep on the house, and not the mortgage rate. If rates do drop next year, you can look at refinancing.
Some people say you should only refinance if you’ll save at least one percent on your mortgage rate. In reality, we look at the numbers: how much will it cost to refinance, the monthly savings, and how long you plan to live in the house. For example, if it will be $3,000 to refinance, and your payment will drop by $250 a month, you need to live in the house for 12 months to break even on the cost of refinancing. That said, if we expect rates to continue dropping, it makes sense to wait to refinance.
Other financial benefits to owning, besides building equity, include both a sizable tax deduction (which usually allows you to itemize deductions, reducing taxes even further) and that your mortgage stays the same, while rent increases over time. To quote a friend “Marry the house, date the (interest) rate.”
CovingtonAlsina is a Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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