Inflation has become an increasing problem across the country in recent days as the American economy continues to struggle under the weight of Covid-19. Many people are looking for ways to help improve their financial status, including potentially refinancing their mortgages.
What We'll Cover
- Is Inflation Good for Mortgage Holders?
- How Will Hyperinflation Impact My Mortgage?
- Mortgage Refinance Interest Rates Forecast 2022
- How Much Will I Save If I Refinance My Mortgage?
- 1. Refinancing your mortgage can help you save on interest
- 2. Refinancing your mortgage can help you lower your monthly payments
- Is 2022 a Good Time to Refinance My Mortgage?
- How long have you had your mortgage?
- How has your credit changed?
- What is your current mortgage rate?
- I Have 10 Years Left on My Mortgage: Should I Refinance?
In 2020, mortgage rates fell to an immense low point. Many people choose to refinance their mortgages in an effort to take advantage of those savings. Now, in 2022, mortgage rates are creeping higher. Experts anticipate that mortgage rates could hit around 3.6%. Meanwhile, housing prices continue to surge, making it more difficult for many buyers to move into a new property—especially first-time buyers, who may not have the benefit of a home that has increased in value. Does refinancing still have benefits for homeowners? In some cases, refinancing your mortgage can act as an inflation hedge.
Is Inflation Good for Mortgage Holders?
In many cases, inflation is indeed good for mortgage holders. In essence, inflation means that the dollar holds less value. However, if you have a fixed-rate mortgage, you will continue to pay the same rate on your home regardless of that change in value. That means that if the dollar is worth 5% less, you are, in essence, saving 5% on your mortgage.
You already bought your property, and the amount you will have to pay for it—assuming that you have a fixed-rate mortgage—will remain the same throughout the duration of the loan. Meanwhile, your property will likely continue to increase substantially in value.
How Will Hyperinflation Impact My Mortgage?
Predictions about hyperinflation have made many people, including homeowners, fear what prices will look like in the near future. The term “hyperinflation," however, may be a misnomer. Hyperinflation requires the price of goods and services to increase by at least 50% for at least a month. However, true hyperinflation is incredibly rare.
Unfortunately, the United States is seeing high overall rates of inflation in general, not to mention prices driven high by shortages of vital materials across the nation. Over the past year, the Labor Department's Consumer Price Index has increased by approximately 5.4%. Meanwhile, home values increased an estimated 18.5% in the third quarter of 2021.
What does that mean for your mortgage? If you have a fixed-rate mortgage, it won't cause much of an impact. A fixed-rate mortgage means that you will continue to pay the same payments and accumulate the same interest each month over the lifetime of the loan. Those payments do not change, regardless of inflation and other economic challenges—but your home's overall value will continue to increase, and the actual value of the dollars you spend on your mortgage each month may decrease, ultimately leaving homeowners and mortgage holders ahead, financially speaking.
Mortgage Refinance Interest Rates Forecast 2022
Estimates vary. However, financial experts put mortgage refinance interest rates around 3.75% to around 3.88%. In some cases, rates may rise as high as the low 4% interest range by the end of 2022. Experts agree that for homeowners looking to take advantage of low interest rates should refinance their loans in early 2022, if at all possible.
How Much Will I Save If I Refinance My Mortgage?
Refinancing your mortgage can help you save in two key ways.
1. Refinancing your mortgage can help you save on interest
Take a look at the current interest on your mortgage. If you purchased your home in early 2019, you might have faced an interest rate as high as 4.46%. In early 2009, mortgage rates were over 5%. By refinancing at the current mortgage rate, which hovers around 3.5%, you may, in some cases, be able to save money on the interest you have to pay on your loan over time. When you're looking at the interest on a several hundred thousand dollar home, even a few percentage-point difference in interest can mean significant savings over the lifetime of the loan.
Many people also find that they are in much better financial shape a few years down the road than they were when they first purchased their homes. If you had poor credit when you initially financed your home, you may have ended up with a much higher interest rate than you would receive if you refinanced your mortgage today.
2. Refinancing your mortgage can help you lower your monthly payments
When you took out the initial mortgage on your home, you likely based it on your then-current financial status. Like many people, your status may have changed significantly throughout 2020 and 2021. You might have faced job loss or ended up with a decrease in your overall income due to pandemic-related job changes. You might be struggling to put the same funds toward your mortgage that you did in 2019. Inflation can also interfere with your regular bills. Your grocery bill, power bill, and other monthly bills may increase significantly, putting a significant strain on your finances.
Refinancing your mortgage can help you save on monthly payments, especially if you have been paying on your mortgage for several years and lowered the overall debt associated with the mortgage. When you extend the terms of your loan, you can lower your monthly payments, which can help make your budget more affordable.
Is 2022 a Good Time to Refinance My Mortgage?
Whether it is a good time to refinance your mortgage may depend on several critical factors. First, consider:
How long have you had your mortgage?
If you took out your mortgage in 2020 or 2021 when mortgage rates tended to run lower, you may not want to refinance. Furthermore, if you have a relatively new loan, chances are that you have not had the chance to work down the principal on the loan, which means you may not see significantly different monthly payments either.
You should also consider how often you have refinanced your loan in the past since you may find it more difficult to refinance at a lower rate if you have recently made other changes to your loan.
How has your credit changed?
If you have seen significant improvement in your credit, it might be worth your while to go ahead and refinance your mortgage. On the other hand, if you have seen a decrease in your credit score due to financial struggles in 2020 and 2021, you may find it more practical to avoid refinancing your mortgage.
What is your current mortgage rate?
Take a look at your current mortgage rate and compare it to current mortgage rates. Do you have a mortgage rate over 4%? If so, you may find that this is a great time to refinance your mortgage. On the other hand, if your mortgage rate is in the low 3%—or if you are particularly lucky and it is in the 2% range—it may not be a good time to refinance.
If you have a variable-rate mortgage, which may shift as mortgage rates change, you may want to refinance your mortgage and choose a fixed-rate mortgage to avoid the potential risks that could come with rising inflation and home costs.
I Have 10 Years Left on My Mortgage: Should I Refinance?
You may have started out with a 20 or 30-year mortgage and paid on it significantly over time. However, with 10 years still remaining, you still have a lot of payments left to make on your mortgage. Is it a good time to refinance?
Before deciding whether you want to refinance, start with a look at these key questions.
What Do You Wish To Accomplish By Refinancing?
Before you refinance your mortgage, carefully consider your goal.
Do you want to lower your monthly payments often because you are feeling financial strain in other areas? By refinancing your mortgage, especially if you lengthen the term of your loan, you could find that this is the perfect time to refinance.
Are you hoping to lower your interest rates so that you end up paying less over time? Check your current interest rate to determine what you might be able to save.
What does your credit look like?
If you have faithfully made payments on your mortgage for the past 10 years or more, as well as clearly meeting your other financial obligations, you may find that your credit has improved significantly since the last time you looked at your mortgage.
On the other hand, if you have recently suffered job loss, struggled to pay your bills on time, or taken on unexpected debt, your credit score might not be as good as you might hope—and it could be less practical for you to refinance your mortgage now. In some cases, refinancing might mean paying more on your loan over time. In other cases, such as a need to lower monthly payments, that may still be acceptable, but you need to know what you're hoping to accomplish and what changes to your credit may mean before you refinance.
If you're struggling to determine what 2022's mortgage rates might mean for you, Loan Depot Refinancing can help. You can also click below to learn more about current mortgage rates and how they may impact your finances if you're interested in refinancing.