Home Loan Rates have dropped again. Whether or not to refinance is again atop many homeowner’s list of “things to discuss”. Questions like “will we save enough” or “do we wait until rates are lower” tug of war your decision to or not to refinance.
Refinance – To Wait or Not to Wait
While no “one size fits all” evaluation exists to reveal if you should refinance, common factors exist that should always be considered. One that needs special attention yet rarely receives it is – what is the cost of waiting to refinance.
Measuring the cost of waiting to refinance is a especially relevant for those knowing refinancing now makes sense. However, those same people are considering holding out for an even bigger savings. In other words, these borrowers are wondering if rates will go lower which in turn would save them even more money versus refinancing today.
Figuring the Cost of Waiting to Refinance
Will rates go lower? The unpredictable future of home loan rates outlines the importance of calculating the cost of waiting to refinance. The mere presence of the possibility that rates could start going back up tomorrow never to return again adds an immediate slight advantage to the “don’t hold out for lower rates” side of the argument – but notice I said slight.
The cost of waiting to refinance is measured by looking at a few factors. For example,
- Time period you would wait for
- Added money spent during wait period vs. refinancing sooner
- Guessing what rates might drop to
As you can see, all of the above are speculative at best. That is just the nature of handicapping situations such as this. Guesses aside, the only way is to make educated and even overly favorable assumptions to determine.
Oftentimes, the conclusion shows that waiting 6 to 12 months for a .125% to .25% lower rate can prove to take years and years to catch up in savings to refinancing sooner for a slightly higher rate.
By Jeremy House