Postponing won’t pay off for many homeowners who plan to move soon, an economist says
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Postponing may not pay off as many homeowners plan to move in the near future, according to Realtor.com Senior Second Power Jake Krimmel.
The key to rebounding, he said, is to know when the movement passes the rule called the “breakeven point,” which looks like the bottom cost is represented by the lower currency.
“The size of the loan, the remaining term, and, most importantly, how long the borrower plans to occupy the home everything,” Krimmel said, noting that “the rule of thumb is closing costs divided by monthly savings.”
While the Federal Reserve cut interest rates for the third straight time, that doesn’t mean interest rates will fall. Rates are not directly affected by the Fed’s interest rate decision but closely track the 10-year Treasury yield.
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Although the policymakers signed when they had one cut in the New Year as the rates are approaching the neutral zone, Economists expect the prices of borrowing to drop a bit, going by 6.3% next year.
While this decline is not great, only down from 6.6% in 2025 in 2025, it leads to questions about further reductions, said Krimmel.
A “For Sale” sign is seen outside a home in Cape Coral, Florida, on July 2, 2024. (Photo by Octavio Jones / AFP via Getty Images / Getty Images)
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Refinancing isn’t free – Homeowners still need to pay closing costs on a new loan, so it’s important that the savings from lower monthly payments outweigh those costs over time, Krimmel said.
Newly constructed single family homes for sale in Encinitas, California are shown on July 31, 2019. (Reuters/Mike Blake)
Refinancing only makes sense when the new mortgage rate is 0.5 to 1 percent lower than the homeowner’s balance because it provides enough savings to justify the sinking costs, according to Krimmel.
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Today, most homeowners have mortgage rates that are below market value, so appreciation can be a waste of money. This is often known as the “lock-in effect”. For example, today, only people with mortgages of 6.65% or more will hit that breakeven where a dip can pay off. Currently, more than 80% of the family’s mortgages are less than 6%, which means that only a small group of lenders can benefit from a re-increase sooner or later.
A sign is posted in front of a home for sale on August 7, 2024 in San Rafael, California. According to a report by Zillow, the 30-year median price dropped 31 basis points to 6.06% while the 30-year average fell 1.15% to (Justin Sullivan/Getty Images)
So if someone is planning to move soon, Krimmel said the “maybe” recommendation won’t be worth it.
The people who will help the most are those who bought homes recently – within two to three years – when rates were between 7% and 8%. Even a small drop in market prices can put more than 1% “in the money,” making a dip attractive. But these lenders also tend to have higher loan amounts and plan to stay in their homes for at least five years, so the savings can be substantial.
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Meanwhile, any lower rates that fall “do not work well” for homeowners who say they are “out of money” or locked out – into a 3% loan.
Homeowners also need to keep in mind that it’s not just about the amount of reported withholding taxes but about what rates they can secure. Credit, down payment and shopping around are very important, and can be more than an exchange for an extended policy, according to Krimmel.
