Should You Refinance Your Home When Interest Rates Drop?

calculator on table with coin stacks in background

The chairman of the U.S. Federal Reserve, Jerome Powell, recently announced that the central bank would be lowering interest rates by one-quarter of a percentage point. The move comes amid some signs of slowing economic activity, especially reduced business investments and lower manufacturing output. Other factors, including consumer spending, indicate that the U.S. economy is still in a relatively strong position, so the Fed hopes that this reduction in interest rates will head off any potential major issues and make it easier for businesses and consumers to invest in the economy.

The Federal Reserve drops interest rates

Most people want to know what this means for them, however, as a reduction in the Federal Reserve interest rate typically has homeowners wondering if they should refinance their home based on new rates. There’s no one single answer to this question, and making a sound decision requires you to look at the recent trajectory of interest rates and consider your own unique situation.

Average mortgage interest rates have fallen over the last several years

While news that the Fed is reducing its primary interest rate doesn’t automatically mean that every single mortgage lender will be offering a lower rate than they were a few weeks ago, it does indicate that the general trend will be towards slightly reduced rates overall. This is likely to continue a trend that has seen many homeowners recently choose to refinance their mortgage to take advantage of lower rates.

In fact, the average interest rate for a 30-year fixed mortgage has been falling steadily for about three years. According to Freddie Mac, the current average rate for a 30-year fixed mortgage is over 1 percentage point less than it was just a year ago. For many homeowners, that makes this a prime time to take advantage of borrower-friendly rates and save some money with a refinance.

How to assess your situation

Ultimately, you have to look at where your current rate stands, what the outstanding balance of your loan is, and when the last time you refinanced was, if ever. If you have very good credit, your current rate is approximately above 3.5-4%, and you haven’t refinanced in a while, now may be a good opportunity for you. Rates may continue to drop slightly in the future, but if signs indicate a refinance would be financially beneficial for you, you may want to jump on it.

Looking to the future

It’s impossible to predict how the current political situation will affect future mortgage rates, so all you can do is use the information you have to make a decision. You also need a partner who will help you find the best home value on the market. If you’re ready to purchase a new home with these lower interest rates, contact an experienced agent from Parker Group today, and get ready to find a great home at the right price.

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