Interest Rates Are Down – Should I Re-Finance?

Whether it’s the national economy or your own pocketbook, finance is always a hot topic of discussion.

These days, the lowering of interest rates seems to be on everyone’s mind. The Federal Reserve has now cut interest rates twice this year, while many are speculating that Chairman Jerome Powell and Co. may drop rates once more.

By way of refresher, the Fed lowering the “federal fund target rate” is a policy decision that  promotes economic stimulus, in part by making the lending market more suitable for would-be borrowers. The target rate gives banks and lenders an idea of where interest rates should be set at any given time. This has a direct connection to the real estate market, as individuals and families are enticed to borrow for a new home or re-finance an existing mortgage. 

For starters, lower interest rates create borrowing opportunities for people who previously could not afford or did not qualify for a traditional 30-year mortgage. Although property values are ever-increasing, most Americans who want jobs have them, and therefore, more people than ever are able to afford a home of some value. The question of your credit score always remains but that’s a topic for another day.

On the other hand, borrowers with an established credit history and a good track record with their current mortgage lender may benefit the most from lowered rates. If you have a good amount of equity in your current home, you may be inclined to borrow against that equity for other expenses or financial endeavors thanks to the lower rate. Some who find themselves in this position will opt to sell their current home, payoff any outstanding balance on the mortgage, and along with their sale proceeds, finance a new home with a favorable rate. This may be an attractive option for growing couples or families who are looking to take a step up. 

There are also those that will re-finance their current mortgage on a property they’ve recently moved into or plan to stay in for awhile longer. For this group of borrowers, those that have diligently made their monthly mortgage payments will rewarded with the opportunity of favorable terms with their lender. By refinancing, the borrower typically seeks for lower monthly payment, however, some will have a scenario that the length of the loan is affected. Just like the borrower mentioned above, the re-financier can also take advantage of some equity built up in the property.       

There is speculation that the Federal Reserve may choose to lower interest rates yet again in the not-so-distant future. If that is in fact the case, the market for new home buyers and re-financers will continue to grow. Preferential interest rates and market conditions means more people than ever are able to realize a part of the American Dream with their home purchase. If you have questions about buying or selling real estate, re-financing your mortgage, or any other real property matters, reach out to Goosmann Law Firm’s offices in Sioux City, Sioux Falls, and Omaha to see how we can help.