We all know that now is a very trying time in the US. Between Inflation and the latest Fed rate hike, it feels as though you're having to rob Peter to pay Paul. So, with everything on the table, you're considering home refinancing. But is it a good idea?
With the cost of living hitting a record high in 41 years and home mortgage rates quickly increasing from 2.96% in 2021 to 5% in 2022, we're going to be on the side of saying yes.
Although the Fed rate hike can seem scary, it won't cause an immediate increase in your home mortgage, but Inflation will. According to Freddie Mac: "We forecast 30-year fixed rates to average 5% in 2022 and rise to 5.1% in 2023."
Future Federal Rate Hikes Currently Pending
"The implication is that the Federal Reserve has to remain aggressive."
Unfortunately, the cost of higher interest rates is going to increase slowly. So far in 2022, there have been four Federal hike increases to help reduce Inflation down to a benchmark target rate of 2%. The Federal Reserve has implemented four interest rate hikes in 2022, including two consecutive "jumbo" rate hikes of 0.75% in June and July. The federal funds rate is currently 2.25% to 2.50%, and plans for more hikes are presently in the works.
Odeta Kushi, the deputy chief economist at First American, said:
Prediction: Rates will moderate
"Ongoing concerns about the economy and the Federal Reserve's fight against Inflation may prompt mortgage rates to follow a seesaw trend in September. While some agree that Inflation may have peaked, it remains uncomfortably high, which puts the Fed in a position to continue interest rate hikes.
Going forward, if fears of recession outweigh fears of Inflation, home mortgage rates may come down. However, if inflation surprises to the upside, the Fed will likely take more aggressive action and mortgage rates will climb faster as a result. Ultimately, how the market interprets incoming data leading up to the September Federal Open Market Committee (FOMC) meeting will have a strong impact on how mortgage rates respond in September."
To Home Refinance or Not, That’s the Question
The data shows we are looking at widespread rate increases, and home refinancing and locking in a lower monthly payment could be your best long-term option.
We know that options are essential, and if you're going to take steps to move towards home refinancing before mortgage rates rise and there's another fed rate hike, here are some things you should know:
- Before you refinance your home mortgage, ensure that you have at least 20% equity (your home's equity is the difference between how much your home is worth and how much you owe on the mortgage.)
- How does your credit score look? You "ll need a credit score with an average of 620.
- What's your current DTI ratio? Look to lower your debt-to-income (DTI) ratio to 36% or less; this gives you the chance to get the best home loan options.
- Look into terms, interest rate comparisons, and home refinancing costs like- loan application fees, home appraisal costs, credit report fees, document preparation fees, title search, loan origination/underwriting fees, mortgage points (discount points provided by the lender), and PMI (Private Mortgage Insurance)/insurance fees.
- Will it be worth it in the end? Calculate the breakeven point to see if it's worth refinancing your home now.
- The USA has had four Federal hike increases in 2022, with more currently under consideration.
- Mortgage rates jumped from 2.96% to 5% in a year and are predicted to increase to 5.1% by 2023.
- Here at Lendgo, we're ready to help you beat Inflation and future price hikes by finding you home refinancing options that fit your budget.