With Mortgage Rates in Flux, Is ‘Buy Now, Refinance Later’ Good Advice?

If you’re in the market for a home but are discouraged by the current high mortgage rates, you’ve probably heard the advice “buy now and refinance later”—maybe from your mortgage lender, real estate agent, or a well-meaning friend.

This seemingly simple solution might empower you to stretch your budget now, with the plan to refinance when mortgage rates drop.

But is “buy now, refinance later” the win-win it’s cracked up to be?

Let’s take a look at this homebuying strategy from all angles and explore the ways in which it could help—or hurt—buyers down the line.

Mortgage rates on the rise

Mortgage rates have been climbing amid stubborn inflation, with a 30-year fixed-rate mortgage currently averaging 6.73%, according to recent numbers released by Freddie Mac. Just a year ago, the 30-year fixed-rate was 3.85%.

And where mortgage rates will go next is anyone’s guess.

“Predicting mortgage rates in the coming months can be challenging, especially considering the current economic climate and various factors affecting the market,” says Joy Aumann, a licensed real estate agent and founder of Luxury SoCal Realty in San Diego. “While some experts believe that rates may remain relatively stable or even decrease slightly, others argue that inflationary pressures and monetary policies could push rates higher.”

What does ‘buy now, refinance later’ actually mean?

“Marry the home, date the rate”—we’ve heard this homebuying approach phrased a number of ways, but the goal is to offer buyers the promise of a better, more financially viable tomorrow.

The idea is that buyers who take out a loan now with a company can refinance in the future when rates drop.

Don Chambers, a Georgia-based real estate investor, says some mortgage lenders are even offering buyers a promotion of “one free refinance” (during the life of their loan) once rates have dropped. This would mean the buyer wouldn’t have to pay refinancing fees and other costs. For example, closing costs for a refinance are typically 2% to 5% of the loan principal amount.

The goal, Chambers says, is to get buyers the home they want now, with the hope that their monthly payments will ease up when rates drop.

How much do mortgage rates have to drop?

Nobody has the ability to predict if and when rates will drop. But for a “buy now, refinance later” strategy to make financial sense, rates would need to drop by a certain amount. For some buyers, rates might never go low enough for a refinance to actually save them money.

Typically, a 1% rate drop is enough to warrant a refinance.

But Troy Shaffer, founder of Blu Corporate Housing in Phoenix, points out that a drop of 2% might be needed to truly make a dent in monthly payments.

Ultimately, it all depends on your individual loan scenario.

“On a $100,000 loan, rates are going to have to drop a lot more than on a $1 million loan to make refinancing a viable option,” says Jennifer Beeston, a senior vice president of lending at Guaranteed Rate Mortgage. “The type of loan you are doing may be easy to refinance or not even possible without an equity gain.”

Loans made for military veterans, for example, are the easiest to refinance. This is because they do not require an appraisal, which can garner additional fees, Beeston says.

“A 3% down conventional loan is a different story, because to refinance you are either going to need the house to go up in value or have cash to do the refinance and meet loan-to-value guidelines,” she explains. “The same goes for low-down-payment jumbo loan options. This is why it is imperative to discuss the future with your lender, if you are hoping to refinance.”

Consider refinancing fees and closing costs

When considering a mortgage refinance, you also have to factor the additional fees associated with refinancing. Closing costs, for example, include the appraisal fee, title services, and attorney fee. As mentioned above, buyers can expect to pay 2% to 5% of the loan principal amount in closing costs.

So even if mortgage rates do actually drop 1% to 2%, crunch the numbers and decide if refinancing would even save you enough money to make it worthwhile.

History shows us that buying more house than you can afford is a terrible idea. So if you can only swing a house purchase because you’re banking on refinancing in a few years, take a step back.

“You shouldn’t buy the house if a refi is essential,” Chambers says. “It’s possible that there will be no rate decrease over the life of the loan.”

Today’s buyers should monitor mortgage rates and consult with a mortgage broker to make an informed decision on the loan that’s right for them.

Related Links

• Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

• What old sitcoms reveal about America’s rising cost of housing

• 10 Surprising Cities Where New-Home Construction Is Booming

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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What old sitcoms reveal about America’s rising cost of housing

Carrie Bradshaw’s life on “Sex and The City” wasn’t quite as unrealistic as you might think.

There’s no way she could have afforded routine purchases of Manolo Blahnik shoes and designer dresses on her estimated ~$60k-$70k salary as a freelance New York City magazine columnist. But her ability to afford her apartment, a West Village alcove studio, wasn’t so far-fetched in the late 1990s.  

Classified ads from the time showed West Village studios for as low as $1k per month. Even a fancy Lower Manhattan studio with a doorman went for ~$2.2k/month on average.

But as rents have skyrocketed beyond incomes, there’s no way a modern-day Carrie Bradshaw could afford to live alone in the West Village.

• The average rent for a Manhattan studio last month was ~$3.1k, and West Village studios go from ~$3k-$4k+. 

• The median freelance journalist in New York City makes ~$69k annually, according to ZipRecruiter, offering less purchasing power than what Bradshaw made more than two decades ago. 

As millions of Americans stream “Sex and the City” and other old sitcoms, warm nostalgia has been accompanied by a cold dose of skepticism about the characters’ apartments and houses. 

Were they paying far beyond their means, or are we judging with a 2020s perspective? 

The Hustle analyzed the salaries and living situations of several famous sitcom characters over the past few decades as a lens on today’s housing market.

What we found is that not every sitcom was a fantasy. But with many young people priced out of cities, and average families unable to buy homes, it just feels that way today. 

Income vs. housing costs

When sitcoms began populating the airwaves, housing costs — both for homeownership and rent — tended to rise in tandem with income and wages. From 1960 to 1970, US median household income barely lagged growth in median rent and actually exceeded the increase in median home sales prices.     

But the trends began to change after the ’70s. 

• In 1970, the median home sales price in the US was ~$23k ($161k in 2021 values), and the median gross rent was $108 ($756). The median household income back then was ~$9k (~$63k). 

• By 2021, the median home sales price had increased 18x to ~$424k, the median gross rent 11x to ~$1.2k, and the median household income 7.7x to ~$69k.

The increases in recent years have been particularly dramatic. Housing prices climbed steadily in the early 2000s, cooled during the Great Recession, and rose by ~24% in the 2010s, compared to a ~17% rise in income, adjusted for inflation.

And then came the wild pandemic housing market, when the median sales price jumped ~39% from mid-2020 to mid-2022. 

The run-up in housing prices has led more people to rent, but rent increases, too, are crushing — outpacing inflation and income growth since 2001. In 2022, cities like Boston and Miami saw rents rise ~20%-40% YoY. 

Keep reading on The Hustle.

Related Links

• Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

• Foundation Repair Tips Your Home Can’t Do Without

• 10 Surprising Cities Where New-Home Construction Is Booming

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

The Federal Reserve raised the target federal funds rate by a modest 0.25 percentage points on Wednesday, after nearly two weeks of turmoil in the financial industry.

Still, this marks the ninth consecutive increase in one year since the central bank began the current rate-raising cycle to combat rising prices.  

Over the last 12 months, inflation spiked to a 40-year high and then finally started to ease, but all of that monetary policy tightening has been tied to issues that are causing a banking crisis now.

In the meantime, consumers must pay more to borrow while continuing to grapple with a persistently high cost of living — all while suffering a crisis of confidence when it comes to their savings.

What the federal funds rate means to you

“The bank problems are probably making a lot of people think twice,” said Diana Furchtgott-Roth, an economics professor at George Washington University and former chief economist at the Department of Labor. “People are not as confident,” she said, referring to the wealth effect, or the theory that people spend less when they feel less well-off than they did before.

For its part, the Federal Reserve has been trying to rein in inflation by raising its benchmark rate.

The federal funds rate is the interest rate at which banks borrow and lend to one another overnight. But that also influences consumers’ borrowing costs, either directly or indirectly, including their credit card, mortgage and auto loan rates.  

How higher rates can affect your wallet

1. Credit cards

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and your credit card rate follows suit within one or two billing cycles.

Credit card annual percentage rates are now over 20%, on average, up from 16.3% a year ago, according to Bankrate. At the same time, more cardholders carry debt from month to month as Americans, in general, feel increasingly worse off financially.

A 0% balance transfer credit card is “about the best tool available for those with credit card debt,” said Matt Schulz, chief credit analyst at LendingTree. Otherwise, consumers could consolidate and pay off a high-interest revolving balance with a lower-interest personal loan.

Even if monthly payments remain the same, consolidating $10,000 of credit card debt into a personal loan could save borrowers up to $3,000, LendingTree recently found.

2. Home loans

Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

The average rate for a 30-year, fixed-rate mortgage currently sits at 6.66%, up from 4.40% when the Fed started raising rates last March.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.76% from 3.96% a year ago.

Homebuyers can greatly benefit from shopping around for additional rate quotes, according to Sam Khater, Freddie Mac’s chief economist.

“Our research concludes that homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among multiple lenders.”

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is now 6.48%, up from 4% one year ago.

The Fed’s latest move could push up the average interest rate even higher, right at a time when borrowers are already struggling to keep up with bigger monthly loan payments.

Experts say consumers with higher credit scores may be able to secure better loan terms or look to some used car models for better deals.

It’s also important to shop around. Car buyers could also save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to another recent report. 

4. Student loans

Federal student loan rates are also fixed, so most borrowers won’t be immediately affected by a rate hike. If you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year, and any loans disbursed after July 1 will likely be even higher.

If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the central bank raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

Savings accounts and CDs

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock-bottom for years, are currently up to 0.35%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 5.02%, much higher than last year’s 0.75% and significantly more than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

Rates on one-year certificates of deposit at online banks are also now over 5%, according to DepositAccounts.com.

“Returns on savings accounts and CDs are the best in 15 years,”  said Greg McBride, chief financial analyst at Bankrate.com, but “you have to shop around to get the benefit.”

Although most savers don’t need to worry about the security of their cash at the bank, since no depositor has lost FDIC-insured funds due to a bank failure, any money earning less than the rate of inflation still loses purchasing power over time.

Learn more on CNBC.

Related Links

• These Simple Cleaning Tips Could Potentially Save You Hundreds of Dollars a Year

• Foundation Repair Tips Your Home Can’t Do Without

• 10 Surprising Cities Where New-Home Construction Is Booming

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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Reasons To Consider Condos in Your Home Search

Are you having trouble finding a home that fits your needs and your budget?

If so, you should know there’s an option worth considering – condominiums, also known as condos. According to Bankrate:

“A condo can be a more affordable entry point to homeownership than a single-family home. And as a homeowner, you’ll build equity over time and have access to tax benefits that a renter wouldn’t.”

That’s why expanding your search to include additional housing types, like condominiums, could help you accomplish your homeownership goals this spring, especially if you can be flexible about the space you need. Condos are typically smaller than a single-family home, but that’s part of what can make them more budget-friendly (see graph below):

In addition to providing more options in your home search and possibly your price point, there are several other benefits to condo living. They tend to require less upkeep and lower maintenance – and that can give you more time to spend doing the things you enjoy. Plus, since many condos are in or near city centers, they offer the added benefit of being in close proximity to work and leisure.

Remember, your first home doesn’t have to be your forever home. The important thing is to get your foot in the door as a homeowner so you can start building wealth in the form of home equity. In time, the equity you develop can fuel a future purchase if your needs change.

Ultimately, owning and living in a condo can be a lifestyle choice. And if that appeals to you, they could provide the added options you need in today’s market.

Bottom Line

It could make a lot of sense to add condos to your home search. Connect with a real estate professional today if you’re ready to check out the options in your area.

Keep reading.

Related Links

• These Simple Cleaning Tips Could Potentially Save You Hundreds of Dollars a Year

• Foundation Repair Tips Your Home Can’t Do Without

• 10 Surprising Cities Where New-Home Construction Is Booming

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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These Simple Cleaning Tips Could Potentially Save You Hundreds of Dollars a Year

Some people like to think of themselves as savvy shoppers, saving their money ahead of time to make big purchases, researching deeply to make sure they buy the best of the best they can afford, and then lying in wait, ready to pounce as soon as a sale hits.

If this is you, your vigilance shouldn’t end once your items are in hand. So much of what you do after you’ve made the purchase determines how wisely you’ve spent your hard-earned cash. 

Taking care of your possessions in large part determines their lifespan. This is a big part of why proper cleaning techniques and routine maintenance tasks are so important: They protect your investments, big and small. Spending time and energy to take care of things the way you’re supposed to might seem tedious and perhaps even unnecessary at the moment, but doing it can save you a good deal of money in the long run. 

Rather than having to pay for costly repairs or replacements on items that haven’t been well-maintained, you can add years to the possessions you already have. Here are some examples.

Clothing

Not all clothing requires special care; many items can be tossed in the washer and dryer repeatedly without much concern. Other garments, however, demand a bit more attention when it comes to getting them clean without undue wear and tear. And sometimes, the way you wash your clothes can cause more harm than good.

“When people wash their clothing at home, they tend to overfill or overstuff their machines,” shares Don Holecek of Crown Cleaners. “You need clothes, especially in a washer, to move around because part of that movement is the friction to release soil. When you pack it too much, that friction is actually causing abrasion and potentially damaging the fabric. That’s how sweaters get pilled. They’re very sensitive to abrasion.” 

Surprisingly, Holecek’s best advice doesn’t involve taking specialty items to the dry cleaner. Instead, he encourages washing your clothes, one way or another, as opposed to letting them sit without getting washed. Soiled clothing, even if the dirt isn’t visible, is what’s causing the most damage to your garments. 

And this isn’t to mention the invisible stains from external sources. “A good example is white wine or Sprite,” says Holecek. “Those become invisible stains — but what’s in those drinks are simple sugars, which turn yellow over time.” 

Moral of the story? Wash the clothes you wear, any way you can. “I’m an advocate for, if you can clean it at home, it’s better than nothing,” says Holecek. Holecek does acknowledge that you don’t have to wash your clothes every single time you wear them, but after a couple of wears is a good rule of thumb.

Larger Appliances

Proper maintenance is arguably more important with larger investments like household appliances. It’s all too easy to forget to care for the things that help you manage chores — washer, dryer, dishwasher — but being diligent to clean and care for these big-ticket items can add years to their lifespans and save you hundreds of dollars in expensive repairs or early replacement costs. 

Stacy Nelson of Pinpoint Appliance estimates that appliances aren’t lasting as long as they used to overall, but with proper care and maintenance, you can add a good five years to an appliance’s lifespan. According to the National Association of Home Builders, the life expectancy of a typical appliance all depends on its use, so if properly maintained as Nelson suggests, it can last longer. On average, dishwashers and microwave ovens have the shortest lifespan (nine years), while dryers and refrigerators last about 13 years.

Nelson offers her expert tips on the most important tasks people should routinely perform to keep their appliances from breaking down prematurely.

Washing Machines

For washing machines, Nelson recommends running the self-cleaning cycle as often as your owner’s manual suggests, particularly for front-loading washers. “When you do not follow all the necessary maintenance, you end up with a broken spindle (due to detergent buildup),” says Nelson. That’s the piece that holds the tub in place for your front loader, and replacing it can cost you at least $600 or more. 

For top loaders, Nelson suggests running vinegar through the unit about once a month or so to address odor. You’ll also want to drain your washer — which you can do yourself or get done professionally — periodically.

Dryers

When it comes to dryers, the single most important thing homeowners should do to maintain them is to have their dryer vents cleaned professionally once a year, which can cost roughly $100 to $200. “Otherwise, you could blow the thermal fuse,” warns Nelson. A thermal fuse is a safety component to help prevent fires — so a blown one can lead to even more issues, repairs, and money spent.

Another easy maintenance tip that you can do is to make sure the lint trap is clean and doesn’t build up or fall inside the dryer. This is an easy, zero-cost habit to build into your laundry routine: Clean out the trap every single time you put clothes into the dryer. 

Dishwashers

An unexpected-yet-useful tip Nelson had on dishwashers: Never run them during an electrical storm. This is due to the potential power surge that can fry the control board. While this can happen to any appliance, it’s most common with dishwashers. Repairing the control board could cost up to $500, so putting this simple information to good use is a no-brainer. 

Refrigerators

A crucial-yet-overlooked task for refrigerator maintenance is changing the water filter. Not only does the filter’s condition affect the taste of water and ice that comes out of your fridge, but it can also cause the whole filter housing to tear, which can lead to water leaks that’ll potentially cause damage to your floors. 

Educating yourself about routine maintenance and scheduling time to do those tasks can save you hundreds of dollars on repairs and purchases. Whether you’re considering your clothing, appliances, or any other home-related possession, the old saying about a stitch in time-saving nine proves to be true.

Read more on Apartment Therapy.

Related Links

• Balancing Your Wants and Needs as a Homebuyer This Spring

• Foundation Repair Tips Your Home Can’t Do Without

• 10 Surprising Cities Where New-Home Construction Is Booming

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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