PHOENIX — Mortgage rates have dropped considerably in August and recent economic research shows rates could continue to drop throughout the rest of this year. The 30-year fixed-rate mortgage is just under 6.5% according to Freddie Mac. And earlier in August, home refinance applications surged nearly 120% over a year ago, according to the Mortgage Bankers Association.
The rates are down in part because market expectations point to the Federal Reserve lowering the federal funds rate in September. On Friday, Federal Reserve chair, Jerome Powell, said the Fed is ready to start cutting its key interest rate from its current 23-year high. Powell didn’t say when the rate cuts would happen or how large the could be.
VERSIÓN EN ESPAÑOL: Expertos locales opinan sobre el refinanciamiento de su casa en un mercado inmobiliario cambiante
Local mortgage loan officer, Eric Martin, NMLS #819945, said the Arizona market is in a mixed environment. That means the home prices have stabilized in some areas after rapid increases the last few years. But inventory is low.
And Martin said we will learn more about potential rate cuts when the Fed meets in September.
“All signs are pointing that they’re going to hopefully decrease interest rates by about a quarter to a half percent," Martin said. "It doesn’t necessarily correlate to mortgage rates, but normally that trend kind of follows there. So we’re hoping they drop rates a little bit in September if they see inflation getting closer to 2%with some more cuts in 2025.”
As the rates drop, Martin said he expects to see thousands more home buyers flood the Arizona market. Martin added, when asking if you should refinance, everyone’s situation is different and it depends on what your finances. The best time to refinance, Martin said, is when interest rates are significantly lower than your current rate.
“A lot of people think if it’s 2% or 3% lower, even a half to 1% is significant enough to save you a lot of money over the life of a loan," Martin said. "Everyone’s situation is unique. It’s a good time if you’ve built up enough equity to refinance to maybe do debt consolidation or home improvement.”
Martin said a lot of his clients racked up debt post-Covid and they’re able to save money by consolidating. He’s seen some save thousands each month.
While there are many positive reasons to refinance your home, Martin said if you plan on moving in the next year, you may want to hold off. That’s because there are closing costs associated with refinancing. So, you have to make sure it makes sense to you and your financial situation.
Martin added one big myth he encounters when talking to Arizonans about home refinance is that they believe they need to reduce their interest rate by at least 2% to refinance. But Martin said, that is not the case.
“Even half of a percent can be beneficial especially if you’re planning to stay in your home, or if you’re refinancing to consolidate debt or remove your PMI which is private mortgage insurance," Martin said. "It's important to evaluate your individual financial situation rather than relying on outdated guidelines.”
Martin recommended preparing for the potential upcoming rate cuts by contacting a local loan officer to discuss your finances and home equity. Check to see if your current situation makes sense to refinance. When looking for a loan officer, Martin said transparency is important. Make sure they’re honest about refinancing fees, and look at their online reviews.
Martin said the loan officer should be educating you about all of the terms of refinancing process. You should leave the process knowing more than when you started.
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