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How to know if mortgage refinancing makes sense now
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In the post-pandemic era, inflation surged to a multi-decade high and the Federal Reserve responded by raising the benchmark interest rate. Although mortgage rates don’t directly track that benchmark rate, borrowing costs still soared for home buyers.
With low mortgage rates off the table, refinancing became a non-starter for anyone who’d obtained a loan at the 3.00% to 5.00% rates customary between 2009 and 2022. Those who bought homes also got stuck with expensive loans, even after shopping for the best rates.
The good news is, the tides are turning. The Federal Reserve reduced rates at its September meeting, with further reductions expected in the months ahead. Mortgage rates are already down over a point and home loans with rates under 7.00% are now available again for many borrowers.
Aspiring homeowners are beginning to come off the sidelines to buy properties before declining mortgage rates push up real estate prices and existing homeowners who bought properties when rates were higher are now grappling with the question of whether to refinance now or wait.
If you’re in this situation, it helps to know what to consider now.
Start by seeing what mortgage refinance rate you’d be eligible for here.
How to know if mortgage refinancing makes sense now
Not sure if a mortgage refinance is valuable for you now? Consider the answer to the following questions to help narrow down your decision:
Will refinancing improve your financial situation?
Refinancing involves getting a new loan to repay your old mortgage, changing your loan terms in the process. It makes sense to do that only if the new loan you can secure will have more favorable terms.
“The most important question to ask yourself when considering a refinance is, will this refinance improve my life now and in the future?” advises Aaron Gordon, a branch manager and senior mortgage loan officer at Guild Mortgage.
To answer this question, you’ll need to consider whether refinancing will save you money, allow you to accomplish other important financial goals, or both.
“There are many reasons why people refinance their mortgage,” advises Melissa Cohn, Regional Vice President at William Raveis Mortgage. “Lower rates, switching from an ARM to a fixed, the end of an adjustable rate initial lock period, debt consolidation, or cashing out, to name the most popular reasons.”
If any of these apply to you, it’s worth looking at the loan offers out there to see if you can qualify for a new loan that accomplishes your objectives. “With interest rates now 1% lower than they were a year ago, now is a good time to consider refinancing for the reasons given,” Cohn says.
Start exploring your best mortgage refinance options online now.
How long will it take to break even?
While refinancing can have significant benefits in the right situation, it’s not without costs. You’ll want to be sure your new loan is a better deal in the long run even after taking into account fees, which could total as much as 2% to 5% of your loan’s value.
“Refinancing only makes sense if the new interest rate is better than your current rate,” according to Armstead Jones, Strategic Real Estate Advisor at PropertyCashin. “The only time the rate doesn’t matter is if you are pulling equity out of your property.”
If you took out a mortgage in the post-pandemic era, today’s rates may be lower than what you’re paying on your current loan. You may also qualify for a better rate if your credit or other financial credentials have improved. The big question is, just how much lower will that rate be, and will you be in the home long enough to cover the upfront expenses?
“What you’re trying to do is get to a place on the figures where your monthly payment falls by enough to offset the closing costs in a reasonable amount of time,” according to Jon Bodan, president and founder of The Perpetual Financial Group, Inc. and a strategic financing advisor at HouseCashin. “This is called the break-even point and generally if it’s under about 36 months it’s a good deal, provided that you plan to be in the home that long.”
Bodan says you can get a mortgage professional to run the numbers for you. There are also calculators online that can help you do this math.
Should you wait for better rates?
There’s one last important consideration. While you may be able to lower your mortgage rate now, chances are good rates are going to continue to decline for a while. Rushing into refinancing could mean you miss out on opportunities to save even more in the future.
“You may want to wait and see if rates come down further for more meaningful savings,” Gordon says. Of course, while the Federal Reserve has signaled more rate cuts are on the horizon and most experts believe mortgage rates are likely to continue declining, that doesn’t mean these predictions will pan out.
“Some clients that could benefit from the current lower rate environment are holding off – basically thinking rates will continue to decline, so they’re waiting,” Bodan said. “This is possible, but there’s no guarantee.”
Bodan says they generally advise refinancing now if it makes sense based on the numbers, rather than waiting for future cuts that aren’t guaranteed. “Worst case, rates fall some more, and in a year or two you refinance again and you didn’t fully break even on the original deal. Not something you want to be cavalier about, but it’s also not the end of the world. No one can predict what will or will not happen with rates in the future.”
The bottom line
If you can improve your financial situation through refinancing and don’t want to gamble on rates continuing to decline, consider shopping around for a loan today and moving forward to capture the savings available now. As Boden explained, refinancing again in the future is possible, so why not cut costs today instead of waiting for a future rate drop that may never come?
CBS News
“Smile 2” actors Naomi Scott, Ray Nicholson and Rosemarie DeWitt on continuing movie’s eerie legacy
With Halloween just around the corner, “Smile 2,” the highly anticipated horror sequel, is ready to hit theaters.
Following the success of the original, which grossed $200 million globally, “Smile 2” continues the eerie story of a deadly curse passed on after witnessing someone’s death. This time, the movie follows pop superstar Skye Riley, played by Naomi Scott, as she battles the pressures of fame, a traumatic past and the madness brought on by the curse.
“She is going through a lot that I think people can relate to in an very unrelatable context,” Scott said. “I think she feels isolated. She feels like people are looking at her, but not seeing her.”
Director Parker Finn shared how his childhood in the Midwest shaped his love for horror.
“I was a movie-obsessed kid growing up in like, gloomy Northeastern Ohio. It always kind of feels like Halloween there,” Finn said.
The relationship between Skye and her mother, played Rosemarie DeWitt, was layered, thanks to Finn’s writing.
“Parker wrote this really nuanced script that could almost play like a drama. It was really skillfully laid out,” said DeWitt.
Ray Nicholson, son of the legendary actor Jack Nicholson, plays Paul Hudson, Skye’s boyfriend.
In one memorable moment, his sinister smile in the film drew comparisons to his father’s famous performance in The Shining. When asked if his father had given him any advice on the genre, Nicholson replied, “My dad and I don’t talk that much about acting… I think it’s important for me to find my way.”
He added, “My mom says, ‘Ray, you were such a beautiful boy, and then you started to look like your father.'”
Finn also spoke about the significance of sound in Smile 2.
“I love to try to avoid what we might think of as typical horror sounds … I want it to feel fresh and different, so it can get under your skin,” he said.
“When you go to see a horror film in theaters, it’s a communal experience,” Nicholson said. “You don’t want to be scared alone.”
“Smile 2” is distributed by Paramount Pictures, which is part of CBS’ parent company, Paramount Global. “Smile 2” hits theaters on Oct. 18.
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In the post-pandemic era, certificate of deposit (CD) interest rates soared with many offering rates above 5%. These rates, which were the highest in years, were prompted by multiple increases in the benchmark interest rate as part of the Federal Reserve’s inflation-fighting efforts.
Since CDs allow investors to lock in those high rates, investors flocked to them even as savings account rates also increased — despite the fact CDs require you to lock up money and penalize early withdrawals.
Conditions are changing, though. As the Federal Reserve has cut interest rates, CD rates have also started to fall. While it’s still possible to get a CD at a good rate, yields are declining and this trend could accelerate as the Fed has hinted more rate cuts are coming. This has many investors wondering whether it’s still worth investing in a short-term CD right now. Below, we’ll break down what you need to know to help you decide.
See how much more you could be earning on your money with a top CD here.
Should you open a short-term CD now?
Short-term CDs are generally defined as those with a term (or length) of a year or less. While short-term CD rates are down off recent highs and expected to fall further, there are still good opportunities for investors to find products with competitive yields.
“Six-month fixed-rate non-callable CDs are yielding roughly 4.5% right now, which is still relatively high by recent standards,” explains Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement Group. “CDs still make sense as a cash proxy for individuals with short-term liquidity needs.”
One benefit of CDs versus high-yield savings accounts is that your rate is locked in, or guaranteed for the duration of the CD term. If you open a 6-month CD today, you’ll keep that rate until the CD matures. Savings accounts and money market accounts have variable rates, so rates are likely to decline within six months as experts predict an additional rate cut of 25 basis points as early as the Fed’s November meeting.
“We are in an environment where interest rates are likely to decrease twice more by the Fed by the end of 2024,” advises Domenick D’Andrea, AIF, CRC, CPFA, financial advisor and co-founder of DanDarah Wealth Management. “If you’re looking for a place to invest emergency money, then short-term CDs are still a great option. With rates decreasing, they should pay higher rates than money market accounts.”
October could also present one of your last opportunities for the foreseeable future to enjoy today’s ultra-competitive yields on these FDIC-insured, low-risk investments.
“The rate of return on short-term CDs tends to mirror the federal funds rate quite closely,” according to Jonathan Ernest, an economics professor at Case Western Reserve University. “With expectations for the Fed to continue cutting rates at their November meeting and in subsequent meetings stretching into 2025, we can expect that rates of return on certificates of deposit will fall as well.”
Get started with a top-rate CD before that happens now.
If you have money to tie up for longer periods, look elsewhere
While short-term CDs are a good option if you want to maximize yields on money you want to keep relatively accessible, there may be other, better choices for funds you’re looking to invest over a longer time horizon. That’s especially true as buying short-term CDs today could leave you with fewer good options in the coming months when your CD matures.
“Rates are set to go down in six months so any investor will be forced to reinvest the proceeds at what almost certainly will be lower yield,” warned Quinzel. “Instead, investors should look at fixed-income securities with longer maturities to lock in yields before they go down. For example, investors can purchase a 10-year treasury that yields just over 4% and won’t have reinvestment risk until the year 2034.”
Ernest also stresses the importance of considering the opportunity cost of investing in CDs versus other investments offering potentially higher yields over the long term. “Remember, you always want to consider how putting dollars into a CD compares with expected returns and the amount of risk faced from other investment options,” he says.
While CDs are very low risk, returns are limited. An S&P 500 index fund comes with a greater chance of loss but also has a consistent track record of producing 10% average annual returns over the long term. If you have an investing timeline spanning five or more years, you may want to take on the added risk to double your potential ROI compared with short-term CDs.
“Ultimately it is important to look at what is the purpose of the dollars to see if short-term CDs work best for your situation,” D’Andrea says. By evaluating the risks and potential rewards of CDs, treasuries, savings and money market accounts, and equities, you can make the most informed choice about where your money should go.