Refinancing your mortgage can be a good idea because it can save money in the long run. Shortening or increasing the mortgage term can allow you to move from an adjustable-rate mortgage to a fixed-rate one, lower your monthly payment, and pay it off sooner. However, it only makes financial sense if you do it at the right time.
Keep in mind that the interest rates of loan products depend on various factors, like consumer demand, risk, and the yield on a ten-year Treasury note. It means the interest rates can be stable for prolonged periods or rise quickly. You need to choose the right time to refinance. To get started, be well-informed by using this article as your guide.
What Is a Baseline Rate?
Most homeowners in the United States refinance their mortgage within the first ten years of purchase. This is why a ten-year Treasury note yield is used for setting the baseline for mortgage interest rates.
In addition, lenders add a percentage to the Treasury rate to account for the additional risk because mortgages are a riskier investment than purchasing a note guaranteed by the government. This difference between the mortgage rate and the ten-year Treasury note yield is known as the mortgage spread.
Do Seasonal Changes Affect Mortgage Interest Rates?
The seasons significantly influence mortgage interest rates, which is why they play a vital role in determining when to refinance. For example, during winter, the real estate market experiences a slow time. Most homeowners in this season just want to relax and prevent potential buyers from visiting their homes because they opt to spend time with their loved ones during the holidays.
The demand for mortgage money is less during winter, which means the mortgage spread is lower. This is why it can be an excellent time for a mortgage refinance.
Is Summer an Ideal Time to Refinance My Mortgage?
Winter can be the right time to refinance, but summer can also provide plenty of benefits because this time is perfect for home purchases. Lenders choose to increase the mortgage rates to have higher interest rates.
You can take advantage of more daylight hours for completing projects to get the most out of your cash-out refinance. For instance, consider replacing your gate, hiring a landscape designer, or repairing your roof. Spending funds on this type of house project adds value to your home and helps build equity.
What Should I Know Before Refinancing?
Before you refinance, consider your financial situation and determine how much money you will save by refinancing and how long you plan to live in your current house. Remember, refinancing costs 3-6 percent of the principal of the loan. Therefore, the cost of refinancing may negate your potential savings if you will be moving to another property soon.
Refinancing your mortgage can be a great move that can help you reach your financial goals. It can even bring your debt under control when used carefully. However, it does not always reduce your mortgage payment, help you build equity, or shorten your loan term. Make a well-informed decision about when to refinance by remembering the information above or reaching out to our mortgage lenders in Phoenix.
Desert Springs Mortgage LLC is a full-service mortgage company in Phoenix offering different financing options, including conventional, FHA, and VA loans. Contact us at (623) 432-1309 to learn more about refinancing or request a free home refinance analysis!