Home Buying Tips
Lessons From a First-Time Home Buyer: Can I Refinance Yet?
Last month, the Federal Reserve cut interest rates by another quarter point. While that’s bad news for my high-yield savings accounts (which, in turn, reduced their APYs), the potential silver lining would be a dip in mortgage rates. As I’ve shared before, when we bought our house, we had to accept a rate of 7.999%. So, although we can afford our payments without issue, we’ve long had the intent to eventually refinance.
Out of curiosity, last week, I went to SoFi to see what sort of refinancing options I might have. The results were… mixed.
The good news is that rates have indeed come down for that 7.999% we locked in. Looking at SoFi’s options, we could save nearly $200 a month. What’s more, they currently have an offer where they completely waive the $1,495 origination fee.
Unfortunately, while that might sound as though we could cut $200 a month from our expenses without paying anything, that’s not the case. Although we’d apparently avoid that $1,495 fee (side note: SoFi members get a $500 discount even outside of this current deal), the origination fee isn’t the only closing cost associated with refinancing. Instead, there could be fees for titling, appraisals, and more.
After I checked my rates, I got a text from someone at SoFi following up on my query. So, I asked him what types of costs we might anticipate outside of the origination fee. This was his response: “They are not outrageous in MO. I’d estimate around $3200 for title and appraisal, assuming we need the appraisal.” I didn’t follow up on the likelihood of an appraisal being necessary or how that’s even determined — but, regardless, wow!
Supposing that this $3,200 figure is accurate and assuming we did end up paying the full $1,495 origination fee, that’s $4,695 in fees to refinance. Doing some quick math, that means it would take two years to break even on the transaction (as we’d be saving $200 a month).
To be clear, that’s not terrible (since we’d then have decades of continued savings). However, with the likelihood that rates will continue to fall in the short term, we’re probably better off continuing to wait — lest we go through the entire process and the fees associated with it again. In fact, there’s a rule of thumb for these situations: a refinance may be worth it if you can get a rate that’s two percentage points lower than your current rate. We’re getting closer to that figure but, alas, we’re still not at 5.999%.
With that, the answer to the question I posed in my headline is “no.” But, I still believe we’ll get there soon enough. Plus, along the way, I continue to learn more about how refinancing even works! All this means that, when the time does finally arrive, we’ll be ready.
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