Refi Refinancing

A recent article found on MarketWatch implies you can better deals during certain times of the year in regards to interest rates:

“If you’re playing the waiting game with mortgage rates, you may not want to wait much longer.

A new study from Haus, the home-finance startup created by Uber co-founder Garrett Camp, examined what role seasonality, loan size, credit scores and other factors play in the mortgage rates that lenders offer borrowers.

The study found that much like the housing market itself the mortgage market ebbs and flows with the seasons. And January, as it turns out, is the best time of year to get a new home loan on average.

In January, lenders offer a discount of nearly 20 basis points compared to the time period between June and October when rates are typically the highest for the year. The cooler weather, in general, brings out lower mortgage rates, with December and February being the next-cheapest months based on the Haus study.

“While we can’t say for exact certainty why rates are lower in January than in the summer months, we can speculate that competition for customers matter,” Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, said in the report.

“Since home buying and refinancing is seasonal, there is less mortgage origination in winter months, so it could be that lenders must lower their rates to stay competitive and attract business,” he added.”

What are the other factors that may go into playing the rate game?

“Nowadays, scoring the lowest rate possible can be akin to finding a needle in a haystack, McLaughlin noted. Although mortgage rates have risen from the record low set right before the New Year, they remain extremely low by historical standards. However, economists have warned that as the year goes on rates could rise, depending on the trajectory of the pandemic and the related economic recovery.

But the timing of when a prospective borrower applies for a new mortgage is just one factor that can save them money. The size of the loan is another consideration. Loans with balances between $350,000 and $450,000 typically fetch a 23-basis-point discount on the mortgage rate compared to mortgages under $100,000, Haus found.

The savings is actually a reflection of the cost for the lender to originate a loan. “The cost of paying someone to originate a loan is the same for a $500,000 mortgage as it is for a $100,000 mortgage, but the latter provides less of a return to the mortgage originator than the former,” McLaughlin said. “In order to help cover this fixed cost, lenders likely increase their rates for lower balance mortgages to compensate.”

However, while this may sound like a good idea in theory, practice is a totally different matter.  Trying to play the “rate game” is never good for the individual consumer.  Making a decision on a mortgage has much bigger consequences than merely rate and term.  In fact, whether you are a first time home buyer seeking to refinance or near your retirement, the question you need to be asking is:

“What will this mortgage do for my overall finances?”

Unfortunately, the wrong questions are being asked by homeowner and mortgage professionals.  A mortgage is a means to an end.  That end is different for everyone.  A mortgage should never be a “one size fits all solution.”  In fact, for it to be a value to you as the homeowner, it should be customized to your life, never a program.

Should you continue to play the waiting game?  Short answer for many is no.  Your finances deserve a mortgage that will pay off debt, save for college, leverage a business, pay for senior healthcare expenses, and fully fund retirement.  Each day you wait hoping for an 1/8 point drop  you are losing money in every other aspect of your life!  Next step is yours!

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