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Thanks to record-low interest rates, the past two years have been a mortgage-refinance bonanza. With rates already rising — and experts forecasting continued increases — refinancing may seem less appealing now.
While it’s true that 2022 is unlikely to offer the same level of opportunity as 2020 and 2021, this year will still be a good time to refinance for millions of homeowners. Record levels of homeowner equity mean cash-out refinances are also on the table for many people. Meanwhile, with rates still low historically speaking, it will generally still pay to convert an older adjustable-rate mortgage to a fixed-rate loan.
Regardless of the type of refinance, you need to make sure the terms of the new loan fit your needs.
“If you shop carefully and you are a well-qualified borrower there will always be a good opportunity for you to refinance,” says Melissa Cohn, regional vice president of William Raveis Mortgage.
As the year begins, pay special attention to the following three areas to prepare for a successful refinance.
Mortgage rates are likely to rise
So far this year, rates have been trending higher. Current mortgage rates hit 3.22% in early January, the highest level since May 2020.
Why are rates rising? Supply chain shortages, high consumer demand for goods and labor shortages have pushed inflation to the highest level in decades. This has led the Federal Reserve to start making changes to the easy monetary policy it put in place at the start of the pandemic.
Following the Federal Open Market Committee meeting in December, policymakers from the Fed announced intentions to cut back on Treasury and mortgage-backed security purchases faster than previously thought and also to begin increasing the federal funds rate as soon as this spring. Although the Fed does not set mortgage rates, these changes will increase costs for mortgage lenders and those costs will be passed on to borrowers.
This is a big part of why experts widely agree that mortgage rates will rise more in 2022, ending the year at anywhere between 3.4% and 3.7%.
In general, refinancing tends to payoff if you can lower your interest rate by at least 0.75 percentage points. With increasing interest rates, it’s more important than ever to shop around with different lenders to find the best rate.
Borrowers who get one additional rate quote can save an average of $1,500 over the life of the mortgage, according to Freddie Mac. Those average savings increase to $3,000 with five additional quotes.
Consider a rate look once you …….