Applications to refinance a home loan surged 20% last week compared with the previous week, according to the Mortgage Bankers Associationโs seasonally adjusted index. Demand was 175% higher than the same week one year ago.
While there is a rush to capitalize on falling rates, North Dallas certified financial planner Bill Dendy said, borrowers should really consider their situation before refinancing.
โThe magic number is really about 1.5 percent. That would be roughly from the peak that we were at just a year or so ago to where we are today,โ Dendy said. โFor those who caught that peak, it is time to refinance, because that 1.5 percent will make a difference. Depending on the loan amount, that could save you $5,000 to $6,000 a year, but you have to weigh it.โ
Dendy said there are several factors that go into refinancing that homeowners should consider before going through with it.
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โKeep in mind, 75 percent of borrowers right now already have a rate that is lower than what they are right now. So make sure that it is cost-effective for you. If you bought a house when rates dropped during the pandemic, your interest rate is probably much lower than the 6.8 percent we are seeing right now,โ Dendy said.
He also said people should talk to a professional before moving forward with refinancing. Often times there are fees associated with refinancing and you will want to make sure you are actually making a good deal in the long run.
He said your credit score also matters.
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โListen, credit scores are getting even more attention these days. You have to have a good one so that lenders can see you can be trusted and will be a good borrower,โ Dendy said.
There is another side of the coin for some though. Joel Jan, vice president and deputy chief economist told CNBC this may be the time some should capitalize.
โThe 30-year fixed-rate decreased for the eighth straight week to 6.13%, while the FHA rate decreased to 5.99%, breaking the psychologically important 6% level,โ Kan said. โAs a result of lower rates, week-over-week gains for both conventional and government refinance applications increased sharply.โ
Dendy agreed, but had what he called the โbottom line advice.โ
โIn most cases, waiting is better right now. The rates will continue to fall, but they are still quite high when you look at historic numbers,โ Dendy said.