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Is a mortgage refinance half a percentage point lower worth it? Experts weigh in
While mortgage rates plummeted during the pandemic to below 3%, some homeowners were unable to lock in low rates at that time. But with many expecting that the Federal Reserve will start cutting the federal funds rate this year, that could trickle down into homeowners starting to get relief.
Still, most expect the Fed interest rate cuts to be modest, and it’s unclear if and when that will actually happen. Meanwhile, mortgage rates have bounced around a bit in recent months, such as by climbing above 7% in April and May, with the average 30-year fixed-rate mortgage rate now back down to 6.86%, according to Freddie Mac.
Amidst these changes and expectations around rate cuts, some homeowners may be wondering whether a small drop in mortgage rates would still make refinancing worthwhile. Specifically, would a mortgage refinance to obtain a half-percentage-point lower rate be worth it?
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Is a mortgage refinance half a percentage point lower worth it? Experts weigh in
Here’s what real estate experts have to say about whether refinancing your mortgage to a rate that’s half a percentage point lower makes sense.
Yes, a mortgage refinance rate half a percentage point lower is worth it
In some cases, it makes sense to refinance a mortgage for half a percentage point from a financial standpoint. However, you have to do the math to see if you’ll stay in the property long enough to overcome the upfront costs.
“On a $200,000 loan, the difference in monthly payments between a 7% interest rate and a 6.5% interest rate is $67. While this savings is beneficial, you must consider the cost of refinancing relative to your planned duration in the property. If refinancing costs $2,500, it would take approximately 37 months to recoup the cost through the lower monthly payment,” says Jerry Koors, president of Merchants Mortgage at Merchants Bank.
Refinancing for a rate that’s 50 basis points lower could also make sense if it helps improve your loan terms.
“Refinancing for a half-point drop can be advantageous, but it’s not just about the rate decrease,” says Jim Breeze, SVP of mortgage product development at PNC Bank.
“For example, if you’re in an adjustable-rate mortgage that’s about to adjust to a higher rate, switching to a fixed rate can be beneficial. If you want more payment stability, refinancing into a fixed rate is a good idea as well,” he adds.
You also might refinance to obtain a more affordable monthly payment, even if it extends your loan duration, says Breeze.
Another factor could be refinancing to get rid of private mortgage insurance (PMI). This could further reduce your monthly payment, says Koors. However, refinancing is not the only way to remove PMI from your current loan.
Explore the best mortgage refinancing rates available to you here.
No, a mortgage refinance rate half a percentage point lower isn’t worth it
While there can be situations where refinancing a mortgage for half a percentage point lower makes sense, sometimes it’s not worth it, particularly when accounting for closing costs.
“I don’t think refinancing a mortgage for half a percentage point is worth it. I wouldn’t recommend refinancing unless the rate was lowered at least .75%, given the closing costs, which could be somewhere between 2%-5% of the new loan,” says Dottie Herman, vice chair and former CEO for Douglas Elliman Real Estate.
Even if you don’t have to pay these closing costs right away, your total mortgage costs can go up.
“To avoid paying upfront costs, some borrowers choose to roll the fees into their new loan amount, which increases the payment and restarts the interest on a 30-year loan,” says Koors.
And if you don’t plan on living in your current home for a while, then the math on refinancing gets harder to justify.
“For example, if refinancing costs $2,000 and reduces your payment by $200 monthly, it will take 10 months to break even. If you’re moving in six months, it may not be worth it. The best thing you can do is talk to a loan officer to review your options,” says Breeze.
The bottom line
The mortgage refinance rate isn’t the only factor behind why some people refinance, and you don’t always need a huge drop in rates to justify refinancing costs. However, it’s important to calculate the total costs, compare your options and see if you could put yourself in a better financial position by refinancing for half a percentage point less. Sometimes the math makes sense, but in other cases, you might decide to wait until rates potentially drop further.
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Biden’s top hostage envoy Roger Carstens in Syria to ask for help in finding Austin Tice
Roger Carstens, the Biden administration’s top official for freeing Americans held overseas, on Friday arrived in Damascus, Syria, for a high-risk mission: making the first known face-to-face contact with the caretaker government and asking for help finding missing American journalist Austin Tice.
Tice was kidnapped in Syria 12 years ago during the civil war and brutal reign of now-deposed Syrian dictator Bashar al-Assad. For years, U.S. officials have said they do not know with certainty whether Tice is still alive, where he is being held or by whom.
The State Department’s top diplomat for the Middle East, Barbara Leaf, assistant secretary of state for Near Eastern Affairs, accompanied Carstens to Damascus as a gesture of broader outreach to Hay’at Tahrir al-Sham, known as HTS, the rebel group that recently overthrew Assad’s regime and is emerging as a leading power.
Near East Senior Adviser Daniel Rubinstein was also with the delegation. They are the first American diplomats to visit Damascus in over a decade, according to a State Department spokesperson.
They plan to meet with HTS representatives to discuss transition principles endorsed by the U.S. and regional partners in Aqaba, Jordan, the spokesperson said. Secretary of State Antony Blinken traveled to Aqaba last week to meet with Middle East leaders and discuss the situation in Syria.
While finding and freeing Tice and other American citizens who disappeared under the Assad regime is the ultimate goal, U.S. officials are downplaying expectations of a breakthrough on this trip. Multiple sources told CBS News that Carstens and Leaf’s intent is to convey U.S. interests to senior HTS leaders, and learn anything they can about Tice.
Rubinstein will lead the U.S. diplomacy in Syria, engaging directly with the Syrian people and key parties in Syria, the State Department spokesperson added.
Diplomatic outreach to HTS comes in a volatile, war-torn region at an uncertain moment. Two sources even compared the potential danger to the expeditionary diplomacy practiced by the late U.S. Ambassador Christopher Stevens, who led outreach to rebels in Benghazi, Libya, in 2012 and was killed in a terrorist attack on a U.S. diplomatic compound and intelligence post.
U.S. special operations forces known as JSOC provided security for the delegation as they traveled by vehicle across the Jordanian border and on the road to Damascus. The convoy was given assurances by HTS that it would be granted safe passage while in Syria, but there remains a threat of attacks by other terrorist groups, including ISIS.
CBS News withheld publication of this story for security concerns at the State Department’s request.
Sending high-level American diplomats to Damascus represents a significant step in reopening U.S.-Syria relations following the fall of the Assad regime less than two weeks ago. Operations at the U.S. embassy in Damascus have been suspended since 2012, shortly after the Assad regime brutally repressed an uprising that became a 14-year civil war and spawned 13 million Syrians to flee the country in one of the largest humanitarian disasters in the world.
The U.S. formally designated HTS, which had ties to al Qaeda, as a foreign terrorist organization in 2018. Its leader, Mohammed al Jolani, was designated as a terrorist by the US in 2013 and prior to that served time in a US prison in Iraq.
Since toppling Assad, HTS has publicly signaled interest in a new more moderate trajectory. Al Jolani even shed his nom de guerre and now uses his legal name, Ahmed al-Sharaa.
U.S. sanctions on HTS linked to those terrorist designations complicate outreach somewhat, but they haven’t prevented American officials from making direct contact with HTS at the direction of President Biden. Blinken recently confirmed that U.S. officials were in touch with HTS representatives prior to Carstens and Leaf’s visit.
“We’ve heard positive statements coming from Mr. Jolani, the leader of HTS,” Blinken told Bloomberg News on Thursday. “But what everyone is focused on is what’s actually happening on the ground, what are they doing? Are they working to build a transition in Syria that brings everyone in?”
In that same interview, Blinken also seemed to dangle the possibility that the U.S. could help lift sanctions on HTS and its leader imposed by the United Nations, if HTS builds what he called an inclusive nonsectarian government and eventually holds elections. The Biden administration is not expected to lift the U.S. terrorist designation before the end of the president’s term on January 20th.
Pentagon spokesperson Pat Ryder disclosed Thursday that the U.S. currently has approximately 2,000 US troops inside of Syria as part of the mission to defeat ISIS, a far higher number than the 900 troops the Biden administration had previously acknowledged. There are at least five U.S. military bases in the north and south of the country.
The Biden administration is concerned that thousands of ISIS prisoners held at a camp known as al-Hol could be freed. It is currently guarded by the Syrian Democratic forces, Kurdish allies of the U.S. who are wary of the newly-powerful HTS. The situation on the ground is rapidly changing since Russia and Iran withdrew military support from the Assad regime, which has reset the balance of power. Turkey, which has been a sometimes problematic U.S. ally, has been a conduit to HTS and is emerging as a power broker.
A high-risk mission like this is unusual for the typically risk averse Biden administration, which has exercised consistently restrained diplomacy. Blinken approved Carstens and Leaf’s trip and relevant congressional leaders were briefed on it days ago.
“I think it’s important to have direct communication, it’s important to speak as clearly as possible, to listen, to make sure that we understand as best we can where they’re going and where they want to go,” Blinken said Thursday.
At a news conference in Moscow Thursday, Russian President Vladimir Putin said he had not yet met with Assad, who fled to Russia when his regime fell earlier this month. Putin added that he would ask Assad about Austin Tice when they do meet.
Tice, a Marine Corps veteran, worked for multiple news organizations including CBS News.
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Delivering Tomorrow: talabat’s Evolution in the Middle East
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