New Year, New Rates, New Home?
Understanding Impacts of Dropping Interest Rates on the Real Estate Market
As we step into the new year, exciting changes are already making their mark on the real estate market! The hottest development on everyone’s mind is the recent drastic drop in interest rates. For potential homebuyers and current homeowners, this brings a wave of opportunities and considerations to the forefront.
I’m a Homebuyer, What Does this Mean for Me?
Dropping interest rates can translate to considerable savings for homebuyers. With lower interest rates, the cost of borrowing money to finance a home purchase decreases. This essentially means more affordable monthly mortgage payments and the potential for significant long-term savings. Unfortunately, it isn’t all good news for homebuyers. As rates drop, especially in markets like ours where inventory is still considerably low, we should expect list prices to climb similarly to the market in 2020 and 2021. If you have been on the fence about purchasing any real estate, now may be the time to pull the trigger.
I Bought When Rates Were Sky High! Am I SOL?
For existing homeowners, dropping interest rates present an enticing opportunity to consider refinancing their current mortgage. By securing a new loan at a lower interest rate, homeowners can potentially reduce their monthly payments, shorten the term of their loan, and get rid of PMI payments (if they have a conventional mortgage and have reached 20% equity in their home based on today’s appraisal value). This strategy may provide substantial financial relief and help homeowners build equity at an accelerated pace. Refinancing does come with it’s own set of closing costs, so be sure to talk to your lender and find out what these fees will look like, and if it’s worth refinancing now or waiting for a more significant rate drop. Rachel Guidry of Edge Mortgage in Lafayette advises homeowners to wait until today’s qualified rate is at lease 1 percentage point lower than your current mortgage rate as a general rule of thumb. She further explained that “it also depends on what circumstances are surrounding the refinance. Sometimes .50% is great if you’re doing a cash out refi to pay off debts with higher interest rates. We take a look at the options to see what the break even point is and that will tell us if a refinance is a positive financial decision.”
What Happens Next?
While the current drop in interest rates may contribute to an advantageous climate for real estate, it's essential to recognize that these conditions are subject to change. Economic factors, geopolitical events, and other external influences could prompt fluctuations in interest rates. As such, those considering buying a new home or refinancing should remain attentive to evolving market dynamics, and keep an open and constant line of communication with your Realtor. If your trusted real estate professionals know the facts about your financial situation, property needs, and priorities, trust them to tell you if now is not the best time for you to make your move. Remember, no one truly knows for certain if and when rates will drop more, or when they will skyrocket again. The best thing to do is shop until you find a home that suits your needs with a payment you are comfortable with, and leave the rest to the pros!
TLDR: Rates are Low, but Talk to your Realtor
In closing, the recent drop in interest rates holds significant implications for the real estate landscape. Whether you are a prospective homebuyer or an existing homeowner, understanding and leveraging this trend could lead to substantial benefits. As always, it is best to consult with a qualified real estate professional (aka me!) to explore how these changes may specifically impact your real estate aspirations.
Questions? Ready to embark on your real estate journey? Click the link below to connect with Rachel Guidry at Edge Mortgage, or fill out the form below to connect with me!
