If you're considering buying a home but feel discouraged by the high mortgage rates, you might have been advised to "buy now and refinance later." But what does that actually mean, and is it a smart buying move?
Let's talk about it.
The basic idea is to buy a home with the best mortgage rate available now and refinance it later when rates have dropped.
The goal is to help you get the home you want now, intending to refi into a more manageable mortgage payment when rates drop.
But how much do mortgage rates need to decrease?
No one can accurately predict when or if rates will drop. However, for the "buy now, refinance later" strategy to make financial sense, rates would need to drop by a certain percentage.
Usually, a 1% rate drop is sufficient to consider a refinance. However, a 2% drop might be necessary for some buyers to make a significant difference in your monthly payments.
Ultimately, it depends on your specific loan situation.
Loans for military veterans, for example, are the easiest to refinance because they don't require an appraisal, which can involve additional fees.
However, with a 3% down conventional loan, the home may need to appreciate in value. That's why discussing your plans with your mortgage professional is crucial if you're considering refinancing in a few years.
Consider refinancing fees and closing costs.
When considering refinancing your mortgage, you must also consider its associated fees. These include closing costs, such as the appraisal fee and title services. Closing costs typically range from 2% to 5% of the loan amount.
As you already know, buying a house when you can't afford the monthly payment is always a bad idea. So if you can only afford a house because you're relying on refinancing in a few years, it might be time to step back.
However, if you can afford the mortgage payment now by making some cuts here and there on unnecessary expenses, then refi later to lower your payment, "buy now, refinance later" may work for you!
Your best shot at making an informed decision is to work with a reliable and savvy mortgage professional like us. Contact us now for an obligation-free consultation!