Buy Now, Refi Later?

As we throttle full steam ahead towards the much anticipated Spring selling season, buyers may be put off by ever rising mortgage interest rates. In fact, just this week the Fed raised rates yet again. The average interest rate for a 30-year, fixed-rate mortgage is sitting pretty at 6.45% as of March 22. This rate has been as high as 6.73%, though If buying is the only option, then you may have heard of the concept of “buy now, refinance later.” Is this strategy wise? 

Does It Help or Hurt?

The idea is simple: stretch your budget a bit now with the intention of refinancing later when the rates drop. Surely they’ll drop, right? After all, isn’t the old saying, “what goes up, must come down?” While that’s all well and good, it’s far from a guarantee. In fact, even the experts themselves are split on whether they predict rates to drop or continue to rise throughout 2023. 

While some lenders are even offering incentive coupons like ‘One Free Refinance’ over the life of your loan, it’s your individual circumstances that will determine whether a refi will even make a difference. Rates on a $100,000 dollar loan are going to have to drop way more significantly than a $1 million dollar loan to actually see savings. 

The rule of thumb though is a 1% rate drop is generally enough to trigger a refinance though you’ll likely see the most savings right away with a drop of 2%. 

Keep in mind, however, that most refinances require another round of appraisals, fees, and closing costs. You have to weigh whether or not those fees will eventually pay for themselves. 

The bottom line is if you can afford today’s current rates, make sure you can realistically make those payments long term. No rate drop is ever guaranteed!