However, the downtrend has caused some borrowers to worry about the timing of the market. Especially in times when interest rates seem to be trending steadily down – just as they were much of April – Is it worth waiting for a bath?
In essence, the answer is no, not. Here’s why.
Waiting for lower prices may not pay off
“The prices are so unpredictable,” said Ken H. Johnson, real estate economist at Florida Atlantic University. “If today’s rate is 3 and you’re happy with 3, pull the trigger.”
Prices are constantly fluctuating, and it can be impossible to predict where they are going, even for the most savvy consumer. In fact, he said, even mortgage experts rarely agree on where interest rates are going, as Bankrate’s proves weekly survey.
“They just don’t know where prices are going to go next,” said Johnson. “Because you don’t know where the rate is going, you can’t answer the question you just asked.”
How quickly are price changes priced into loan offers?
This is another reason why timing the market is so difficult: interest rates are constantly changing and can be affected by various variables.
“Our residential mortgage markets, mortgage-backed securities, and capital markets are so efficient that these things are being priced in right away,” said Johnson. “There is no time lag,” he added. “You can’t guess.”
This variability can make it especially difficult for borrowers to know if they’re getting the best deal, and that’s why Johnson said it’s not worth waiting for the lowest possible interest rate. Instead, he said, just go with a tariff that saves you money and lets you do it make up for it Your upfront costs in a reasonable time.
How much money is at stake?
The possible interest savings depend on the size of your loan. With interest rates still close to their all-time lows, even high-interest loans are relatively cheap in the current market, and the difference may only be a few tens or hundreds of dollars a month – maybe a few thousand dollars over the life of the average size Loan.
Because of this, Johnson reiterated that agreeing to a mortgage is more about how the terms of the loan fit into your personal financial picture than about getting the absolute lowest interest rate.
Could a Float Down Mortgage Help?
A float-down mortgage is essentially an agreement with your lender to pay a fee once you’ve set your interest rate that allows you to get a lower interest rate if the market declines before you close.
Often times, even if you end up keeping the same rate, you’ll have to pay the fee up front. Just like timing the market, it can be difficult to know if this is a good deal, and you won’t be able to calculate your breakeven point until you know what your new rate will be.
Ultimately, you need to do your own cost-benefit analysis and decide whether the fee your lender is charging for the float-down is worth the potential savings.
Is the timing of the market different for refinancing than for buying a new home?
Not really. With both refinancing and new mortgages, the key question is whether the loan terms are a good fit for you and your own finances. It can be a little easier calculation the benefits of having a refi because you know how much you are paying for your current loan.
Johnson said the bigger problem for buyers in the current market is that demand has increased Real estate prices to the point where they have wiped out much of their low mortgage savings.
He calculated that interest rates had dropped to 3 percent from 4 percent last spring, meaning borrowers could afford to borrow around 13 percent more capital at the same total cost.
Now, he said, house prices have appreciated above that 13 percent threshold.
For example, Johnson said, “You would have been better off buying at $ 100,000 and 4 percent than you were at $ 113,000 and change and 3 percent.”
Timing the market and staying ahead of the curve on either a refinance or a new mortgage loan is just a guess. That doesn’t mean you can’t save by waiting, but you can also lose at constantly fluctuating rates. For most borrowers, it makes more sense to analyze your finances and agree to a loan that seems like good deal to you, even if it doesn’t have the lowest interest rate possible.
One more thing to know: Almost every interest rate watcher believes that mortgage rates will rise this year and next as the economy recovers from the pandemic.