When Is The Best Time To Refinance Your Home

Is It The Best Time To Refinance Your Home?

With interest rates fluctuating, some homeowners are wondering whether it’s the right time to refinance their mortgages. 

As the Federal Reserve hints at potential rate cuts (possibly three cuts by the end of 2024), the question becomes even more pressing: Should you seize the current rates or hold out for further drops? Should you lock in a 30-year mortgage or choose a 10-year ARM (adjustable rate) mortgage? 

I am are going to address some common concerns surrounding refinancing, give you tips on how to lower your rate and where you are most likely to get the best rates on a mortgage refinance.

Timing Your Refinance

Timing is crucial when it comes to refinancing. The general rule of thumb is to refinance when the potential savings outweigh the associated costs.

You may have heard about “no fee” refinances, which isn’t always exactly true (nothing is really “free”). Most refinances on “jumbo loans,” which is often what you see in San Francisco, are done through large banks, which are typically the least expensive. 

Refinance fees through the big banks are typically $4,000-5,000 and include lender fees, title and escrow, and appraisal. Fees can really vary bank by bank, so be sure to shop around. 

Evaluating Potential Savings

To illustrate the potential impact of refinancing, let’s consider a hypothetical scenario. If you purchased a home in the fall of 2023 at a higher interest rate, such as 7%, or 8%, and can now refinance to a lower rate, say 6%, the savings could be significant. 

For instance, on a $3 million home at a 7.5% rate (APR) with 20% down, the monthly mortgage payment will be around $16,700 a month. The same purchase at 6% (APR) and 20% down would be $14,400 a month. That’s a decrease by $2,300 a month, resulting in substantial annual savings ($27,000). That sounds like a deal worth having.

With a loan that high, a 1% point difference is pretty substantial. 

Many believe (including myself) that rates are going to continue to fall so there is the argument that if rates are going to fall lower, wait it out. But, in the meantime, you are losing money every month. If it was me, I’d wait a few months  and then I’d probably go ahead with a refi.

Gathering information and paperwork for a loan can be an arduous process, but if you don’t have complicated taxes (investment properties, etc.), you may want to refi every time there is a half point rate drop. You can take that money and reinvest it into the loan keeping the same loan amount, paying down the principal.

And, did you know that if you make one extra payment a year, you can pay off your loan five years earlier?

The Business of Lending

I sell real estate. I don’t sell loans, and I don’t make any money on loans. I do, however, work with some fantastic lenders. Lending is a strange industry; you don’t seem to have to possess any certain financial qualifications to be a lender. 

But, some lenders are really more like financial planners, and can be really innovative and creative when it comes to structuring loans. 

It is worthwhile to find someone who has good qualifications, and I highly suggest shopping around. I am more than happy to recommend some of the best people in the business; feel free to reach out. 

Big Bank Refis 

Are you what you think a bank would consider an A-buyer? That means you have:

  • Really good credit 
  • Great debt to income ratio
  • Good income

If this describes you, a big box bank is where you are going to get the best deal on a refi.

When you form a “relationship” and bring money to the bank, you can get, say, three-quarters of a percentage point off. This is only going to be offered at big box banks, and happens when you bring over assets. It doesn’t have to be just cash, it could be assets such as stocks. 

For instance, $250,000 – $2 million in assets, you could get .125% – .75% discount from the standard loan rate they’re offering at the time.

Choosing the Right Loan Term

When refinancing, homeowners can decide between a 10-year adjustable-rate mortgage (ARM) and a 30-year fixed-rate mortgage. 

While a 10-year ARM typically offers lower rates, it’s essential to weigh the potential risk of rate fluctuations against the benefits of a fixed rate over the long term. Chances are, you are going to refinance in the next 10 years. So unless you are really risk averse, the 10-year could work for you. That is probably what I would choose. 

Consulting with a trusted lender can help you determine the best option based on your financial goals and circumstances.

Navigating the Real Estate Market

While we are waiting for the rates to drop, we are starting to see the market heat up in San Franciso. We just sold a house in the Outer Richmond that we ratified 15% above fall comp prices, and we had seven offers. And, there were homes close by that performed similarly. 

As of February 2024, the market seems more heated than it was in spring 2023. I’d suggest, if you are going to buy in 2024, the sooner the better. The only downside is that inventory is light and it’s possible we will see more inventory hit the market when rates drop and sellers are more motivated to sell. 

Right now, 70% of current mortgages are below 4% (APR). The more that gap closes, the more inspired homeowners will be to sell their property and get into a new mortgage. 

To be clear, in San Francisco, we always have an inventory problem, so we aren’t far from our historic averages when it comes to inventory. But, things are a little lighter than usual at this time of the year. 

Navigating the Market

Hopefully I demystified some things around refinancing. 

In today’s competitive housing market, timing is key. Whether you’re considering buying or refinancing, staying informed about market trends and seeking guidance from real estate professionals can help you make informed decisions. Feel free to reach out to my team at (415) 735-5867, and subscribe to my newsletter.

If you’re looking for more information about real estate in and around San Francisco, read more on our blog or check out our YouTube videos. We cover everything from neighborhood reviews to market data. If there’s a real estate topic you’d like to know more about, let us know!

February 27, 2024
Buying a Home , Selling a Home
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