The Current Outlook on 15-Year Fixed Refinances
Published May 7, 2022
For the last decade, mortgage interest rates have hovered near record lows. Many homeowners have taken advantage of those low rates by refinancing their mortgages. However, now that rates have started climbing higher, you may begin to wonder whether the time to refinance your mortgage has passed. Perhaps you feel an element of pressure to refinance now before interest rates rise further. After all, the Federal Reserve has announced its plans to increase interest rates several more times over the remainder of the year.
A closer look at 15-year fixed refinance rates
Throughout the second half of 2020, the average interest rate for a 15-year fixed refinance remained below 2.%. In early 2022, the average 15-year refinance rate hovered around 4.4%. Adjustable-rate mortgages and other fixed-rate mortgage options, like the 30-year fixed-rate mortgage, have risen in tandem. At least six additional rate increases are expected throughout the remainder of 2022. The Federal Reserve has indicated that these each may be 0.25% to 0.5% increases.
Whether you intend to lock in a great rate for a rate-and-term mortgage refinance or a cash-out refinance, you may feel pressured to move forward with your application before the next rate increase. After all, a higher rate for your 15-year fixed refinance could impact the loan amount that you qualify for, as well as your mortgage payment. Before you apply, however, it is essential to consider a few important points.
Your mortgage refinance options
A 15-year refinance loan offers exceptional benefits. With a shorter term, you can keep interest charges over the life of the loan to a minimum. You can also accrue equity faster than you would with a longer-term loan. Additionally, your loan would be paid off faster. However, a 15-year fixed refinance loan is only one of several options.
For example, some homeowners want a lower mortgage payment while still taking advantage of a fixed-rate loan. A 30-year fixed-rate loan will typically produce an impactful difference in the monthly loan payment. However, it would take you twice as long to pay off the loan. And you would pay more in interest charges and build equity at a slower pace in the process.
Another option is an adjustable-rate mortgage or ARM. An ARM comes with an initial fixed-rate period. During this period, the interest rate is generally lower than with a fixed-rate mortgage. As a result, the initial mortgage payment may be lower. However, at the end of the fixed-rate period, the interest rate will start adjusting regularly. This will cause the mortgage payment to adjust. Many people with an ARM decide to pursue a 30-year fixed-rate or 15-year fixed refinance once this happens. The stability that comes from having a fixed monthly mortgage payment is often the motivating factor.
The unpredictability of interest rates
Whether you are interested in a 15-year fixed refinance, or another mortgage refinance option, it is important to note that interest rates are unpredictable. The Federal Reserve has announced its intentions to raise rates several times over the remainder of 2022, but this is not etched in stone.
The Fed reviews a wide range of factors when determining its monetary policy. Recently, discussion of the inflation rate has driven its decision to raise interest rates. In addition, global issues have driven inflation, such as supply and demand and international conflict. However, employment, housing, and other factors are also taken into consideration. Moreover, each factor is influenced by a wide range of moving sub-factors. With so many factors that are constantly adjusting, accurately predicting interest rates at the end of 2022 and beyond is not possible.
The best time to refinance your mortgage
While you understandably want to lock in the lowest interest rate possible, it is crucial to do so only when ready. For example, are you planning to apply for a 15-year fixed refinance loan to pay off your mortgage sooner? With a rate-and-term refinance, you may wish to pay all your closing costs upfront rather than roll them into the loan. This could help you keep your mortgage payment lower and pay off the loan sooner. If this is your goal, it makes sense to save enough money to cover closing costs before applying.
Many people choose to refinance their mortgage as part of their relocation plans. For example, you could apply for a 15-year fixed refinance loan to pull cash equity out of your property. This equity could be used as a down payment on a new home. However, at the same time, you may be trying to time the real estate market to optimize the profit from the sale of your home or to get the best deal on a new home. In addition, because you may only keep this mortgage refinance loan in place for a year or less, a slight increase in the interest rate may have a negligible impact on your finances.
Your mortgage plays a considerable role in many aspects of your financial health. Regardless of whether you have a 15-year fixed refinance in mind for these or other purposes, the best time to refinance your existing mortgage is when you are ready to do so. While rates are projected to increase in the coming months, nothing is certain. Rates may rise, but they may not do so at the pace you expect them to. If you are ready to move forward with your refinancing plans, your next step is to explore today’s interest rates for a 15-year fixed refinance loan. Schedule an appointment to talk through your options.