Should Homeowners Act on Lower Mortgage Rates?

NEW YORK — As mortgage rates dip lower, is this the right time to refinance?

Though the vast majority of Americans — 84.2%, according to an analysis from Redfin — have mortgage rates below 6%, that still leaves several million who could benefit now. Data from Chase Home Lending suggests that roughly 4.7 million homeowners would come out favorably from refinancing if rates dropped below 6%. With the popular 30-year fixed-rate mortgage hovering near a two-year low of about 6.08% in recent weeks, it's likely many homeowners are considering that step.

Back-of-the-envelope calculations suggest that borrowers who purchased a home with a $375,000 mortgage when rates were above 7% could now stand to save more than $200 a month, said Bill Banfield, chief business officer of Rocket Companies.

But homeowners should weigh that lower monthly cost against the fees associated with taking out a new loan. A good rule of thumb is to take advantage of a refinance when you know you'll be able to break even on the closing costs in roughly two to three years, Banfield said. So if you're thinking about moving in a year or two, it might not be worth it.

However, if refinancing can benefit your budget, don't hold out for lower rates, experts say.

"We don't think customers should try to time the market," said Nina Gidwaney, Chase Home Lending's head of refinance and home equity. "It's very difficult to do that. If you have an opportunity to save, you should take advantage of that."

Most experts believe the lower rates already reflect financial market expectations that interest rates are likely to keep declining. But keep in mind that there is likely to be a lot of choppiness in the markets, including those for mortgage rates, over the next few months, said Daryl Fairweather, Redfin's chief economist.

But it's also because anytime the Federal Reserve gets ready to make a big move — like dropping interest rates for the first time in years — it takes markets a while to get settled, she said.

So if you're still tempted to try to time the market, just remember that bumpiness means rates could actually tick higher for a while before lurching lower, Fairweather said.

Talk to a professional before you refinance. Let a mortgage broker or other financial pro run the numbers for you and help you determine if it makes sense for you to take the plunge now or wait. Always, always get multiple quotes instead of settling for the first one.

"Homeowners are sitting on a record amount of home equity to draw upon," noted Michael Micheletti, chief communications officer at home equity company Unlock Technologies.

Data from ICE Mortgage shows that Americans have roughly $11.5trillion in tappable equity – meaning the amount they could withdraw and still maintain a 20% cushion.

Homeowners who want to consolidate other debts may benefit from a cash-out refinance, Gidwaney said. Even if you have to replace a current low mortgage rate with a slightly higher one, it might still be lower than what a credit card or personal loan costs you.

But if that's your goal, Micheletti said, you should probably also investigate home equity loans and lines of credit.

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