Dear Homeowner Or Potential Homeowner, are you looking to refinance your mortgage now? As the pandemic recedes, inflation expectations are going up. As a result, mortgage rates could move higher. Refinance your mortgage before it gets more costly.
Refinance Your Mortgage Now
It behooves you to at least check what the latest rates are if you have not refinanced in the past six months. If you are a new homebuyer or want to refinance, it's important to get as many bids as possible. This will help you to get the best mortgage rate and terms as possible.
Credible with its massive network of mortgage providers is one such solution I've found online. They get multiple banks to compete for your business by simply filling out a one-minute questionnaire.
Online lending marketplaces are the easiest way to compare rates and lenders all in one place. Check the latest mortgage rates online right now.
You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more free mortgage rate quotes you can get, the better. This way, you feel confident knowing you're getting the lowest rate for your situation. Further, you can make lenders compete for your business.
My Take On Long Term Interest Rates
Mortgage rates were going down for almost 40 years as you can tell by the chart. In 2022 they started to tick up and there is obviously a risk that interest rates will continue to rise higher. But I'm in the camp that interest rates should stay fairly low for years to come.
I see a scenario where interest rates only inch up by about 1% maximum over the next five years. There's still a lot of slack in the economy.
In addition, the Federal Reserve will only raise the Fed Funds rate marginally. Even so, the Fed's actions don't mean mortgage rates will go up. Mortgage rates are more tied to the 10-year bond yield, which is determined by the market.
Refinance Now With Lower Rates
In a low interest rate environment, I prefer taking out a 5/1 ARM amortizing over 30 years. Why pay a higher rate when the average length of homeownership is 7 years and interest rates are in a structural decline? Although, a 15-year mortgage looks extremely attractive now.
You can certainly go for a 30-year fixed loan if you want absolute piece of mind and believe interest rates will be aggressively higher in the future. But if the 5/1 ARM mortgage rate is at least 1% cheaper, then I would strongly consider an ARM.
Take the monthly interest savings and save or invest it. There's a interest rate hike cap that's fixed for one year after the fixed adjustment of an ARM is done.
There's also a lifetime interest rate cap that's usually no more than 4% – 5% higher than the initial rate. You can always refinance your ARM before the fixed period is over like I've done many times before.
If You Currently Have An ARM
If you have less than two years remaining on your adjustable rate mortgage before it becomes variable, look to refinance your mortgage now or before the fixed rate ends.
It's a good idea to monitor LIBOR rates because ARMs are tied to LIBOR rates once they are variable.
Further, the London Interbank Offered Rate (LIBOR) is a short-term rate tied very closely with Fed Funds rate, which is the overnight interbank lending rate in the US.
The great thing when you refinance an ARM is that banks base the initial 3, 5, 7, or 10 year fixed rate on the 10-year bond yield, which dropped below 1% in 2020. The banks are essentially SUBSIDIZING you with a lower rate in the beginning to get your business.
Take Advantage When Rates Are Lower
The goal with refinancing is to save money by locking in a new low rate before rates rise further. I've refinanced three different properties over the past 13 years multiple times. My combined interest savings a month is roughly $4,000.
That adds up to well over $1,000,000 in interest savings over the life of the loans! If you can find a home that's a good deal, you can afford the payments, and plan to stay there for 10+ years, then you should be in good shape to buy property.
Real Estate Investment Alternatives
I certainly hope you can benefit financially and refinance your mortgage now. Here are some additional recommendations to improve your financial health, invest, and grow your wealth.
Refinance Your Debt
Your goal should be to get as many written offers as possible. Then use the multiple offers as leverage to get the lowest interest rate possible from them or your existing bank. When banks compete, you win.
Explore Real Estate Crowdsourcing Opportunities
If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise. Fundrise is one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments. You can invest beyond where you live for the best returns possible.
For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It's free to look.
About the author: Real estate is my favorite asset class to build great wealth over time. It is tangible, provides utility, and can generate perpetual income. I own three properties in San Francisco, one property in Lake Tahoe, and one property in Honolulu.
Real estate makes up roughly 40% of my overall net worth, with the remaining portions in equities, private equity, and my online business. I worked in finance for 13 years at two major investment banks and received my MBA from UC Berkeley with an emphasis in real estate and finance.
FinancialSamurai.com launched in 2009 and is one of the largest personal finance blogs on the web. It gets over eighteen million organic pageviews a year.
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