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Home Mortgage Refinancing: Is now the right time for a new mortgage rate?

by Danielle Woods, daniellewoods@propel-fa.com

There is much hubbub on social media and in advertising about the current mortgage rate environment.  Honestly, I’m at a bit of a loss as to why that is, except for the fact that mortgage rates are a positive ray of sunshine in the midst of our otherwise gloomy economic predicament.  Let’s explore the facts.

Mortgage Rates 2000-2020

Mortgage rates have been on a steady downward trajectory since the dot com bubble burst back in 2000.   The 30-year mortgage rate in 2000 was over 8%, and it hasn’t been anywhere near that high since.  Actually, the bottom was in 2012 (I bought a house that year!) when the 30-year mortgage rate was about 3.66%.  Since 2012, it’s stayed very low with a peak of 4.5% in 2018.   

Two weeks ago, mortgage rates hit an all-time low but have been climbing since with another spike recently, bringing the 30-year to a whopping 3.65% (that does not include the fees that you incur when signing up for a mortgage).  

Source: https://themortgagereports.com/61853/30-year-mortgage-rates-chart

What’s my point?

My point is this:   Yes, mortgage rates are low.  But that is old news.  If you were lucky enough to lock in that historically low rate a few weeks ago, that’s fantastic. If you didn’t, it’s fine.  We do not think mortgage rates are in any hurry to go much higher.  In fact, they may go back and forth between really low and just their normal low for the next several months while the economy adjusts to the Covid-19 situation.   But we would be surprised if they dropped much. What might cause spikes in rates?  High demand.  

If you do not have a 30-year rate higher than 4 -4.5%, you probably don’t need to spend the time and money refinancing.  Remember that refinancing is not free!  You will pay extra fees to the title company, mortgage company, and anyone else who may come calling if you refinance unnecessarily.  If you are buying a new house, then I wish you well on the lowest rate you can get; but be sure to ask about the closing costs in addition to the mortgage rate you are offered.

A Word of Caution from the Propel Team

We love it when people save money, but our team’s definition of saving money and many American consumers’ definition do not always match. For instance, we think that if you lower your mortgage rate and your monthly mortgage payment, you have more money to save for future needs.  There will always be a time that you wish you had extra money saved up.  We venture to guess that the year 2020 may be one of those times.

Unfortunately, many Americans behave as if saving money on one bill simply means they can spend more on another.  What’s worse is that many Americans believe that low-interest debt is the same thing as savings!  It is not.   Debt is debt no matter how low the interest rate you pay on it.

While it is tempting to take out some home equity during a refinance to pay off credit cards, buy a car, go on a vacation, etc. with your new low-interest mortgage rate, DON’T.   Exchanging one debt for another is still debt.  Your focus should be on spending down debt and not adding more to it.  

Take the average S&P 500 American company, for instance. Treasury rates have been extremely low since the 2018 recession.  American corporations have taken advantage of those low rates and have taken on a lot of debt to boost their books.  The result has been the delightful bull market we enjoyed from 2010 to 2019.  As we all know, what goes up must come down.   As those decisions have come home to roost in 2020, it’s been very painful for all of us and may continue that way for some time.  Do not make the same mistake with your personal finances.  

Maintaining a steady savings regimen is the best way to protect against these market downturns, which are no mild adjustment as we’ve seen over the past 20 years.

If you are feeling stressed and/or need some guidance during this difficult period in the economy, please reach out to us.  We remain calm and diligent in our resolve to see our clients through these uncertain times.