As discussed last week, the Federal Reserve’s rate cut won’t immediately affect mortgage rates, so we shouldn’t expect a flurry of sales activity right away. In fact, we may not see a significant uptick in the housing market for some time. Since most deals take 60 to 120 days to close, the real impact likely won’t be felt for another three to four months.
Many buyers seem to be waiting for rates to drop further. As I mentioned last week, Greg Heym, Chief Economist at Brown Harris Stevens, cautioned that this strategy could backfire. Increased demand could drive prices higher. Currently, buyers are still facing elevated home prices as the market hasn’t fully normalized.
Meanwhile, there has been a notable 20% surge in mortgage refinancing demand from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Refinancing applications now account for 55.7% of all mortgage activity. By contrast, mortgage applications for home purchases rose just 1% for the week and are up 2% compared to the same week last year.
For those who bought homes in the past two years and are seeking a lower interest rate, it’s important to determine if refinancing makes sense for you. It’s only worth it if you plan to stay in the home long enough to recover the closing costs and other fees. The Fannie Mae Mortgage Refinance Calculator is a helpful tool to assess whether refinancing will benefit you.
Also, keep in mind that while lowering your monthly payment can provide more budget flexibility, it may result in paying more interest over the life of the loan. Alternatively, opting for a shorter-term loan, like a 15-year mortgage, could save you significantly on interest. There are also resources available to help you shop for lenders if you decide refinancing is in your best interest.