It was just announced that the average rate on a 30-year-mortgage fell to 3.6%, representing a three-month low. That’s 85 basis points below the 4.45% average rate the same time last year, and according to the chief economist at Freddie Mac, mortgage rates are now about ¼ of a percentage point above the historic all-time lows. The low cost of financing is creating a big boost for the housing industry.
There has been an uptick in both home sales and new construction.
Analysts expect rates will remain low throughout 2020.
When rates are low, how can you best take advantage of them? If you’re weighing refinancing to renovate or on other end of the spectrum, buying a new house, which is going to be a better financial decision?
There are a few things to consider.
It’s a Buyer’s Market
If you’re trying to decide whether or not you want to buy a new home, consider that it is a buyer’s market. Of course, as a buyer, that’s great but if you have a home you have to sell first, maybe not as great. Depending on where you live and what the market was like when you bought your home, you have to be realistic about whether or not you’re going to be able to make the profit you’d like if you sell now.
Of course if you’re currently renting, it might be a great time to become a homeowner. You can take full advantage of the historically low rates.
What About Refinancing?
If you own a home currently and you’ve been considering whether or not to renovate, you might be simultaneously asking yourself if it’s a good time to refinance. You can refinance your mortgage and free up that cash to make improvements to your home. When you refinance, the liquidity you get stems from either having a lower monthly mortgage payment, or you might do a cash-out refinance and borrow against your equity.
When you refinance the primary benefit is the fact that you can get a lower mortgage rate so you’re saving on the overall cost of your loan and potentially paying less each month.
It is a good time to refinance and potentially cash-out as well. If you refinance, ensure that you have good credit so that you really can secure a lower rate and make sure you account for the fees you’ll have to pay. There are situations where the rate may be low, but the fees might be high.
If you are going to refinance, even with low rates, you should still shop around and compare what’s out there.
Regardless of why you’re refinancing or the specifics of how you’re doing it, always do the math and ensure the costs don’t outweigh the benefits.
What About a Home Equity Line of Credit (HELOC)?
Another way you could take advantage of low rates and make some repairs or renovations to your home is by getting a HELOC. If you plan to move within five years or you already have a low mortgage rate, a HELOC may be better than refinancing.
On the other hand, if you plan to stay in your home for more than five years and you can get a lower rate, refinancing may be better.
There’s no one right answer for everyone right now as far as taking advantage of low interest rates. If you’re in a position of being torn between a refinance to renovate or buying a new home, factor in all the anticipated costs and possible pros and cons. These include everything from how much profit you could make selling your current home, to whether or not you would end up with a better deal if you refinanced after including all fees.