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Friday, October 7, 2022

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Mortgage Rates: When should you refinance your mortgage?

The year 2022 has witnessed a rapid rise in inflation across the USA, with the inflation rate for August touching a significant high of 8.5 percent, and, in a bid to curb inflation, the Federal Reserve has decided to increase interest rates.

In fact, just yesterday, on September 21, 2022, the Fed upped interests rates by a further 0.75 percent to 3.75 percent, with further increases expected to flatten inflation, with 4.40 percent to 4.60 percent the target in 2023.

“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Fed chair Jerome Powell stated in his speech.

“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.

“These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

Is now a good time to refinance your home mortgage loan?

With the changes to interest rates, many homeowners are wondering what this means for their mortgages and if this is the right moment to make changes.

The short answer for most people would be “no” at this particular juncture, as refinancing your loan usually makes sense when interest rates go down.

However, the answer is more complex and depends on a case-by-case basis.

In general, you should consider refinancing your loans when it’ll save you money and reduce your interest rate by at least 1 percent.

That’s because refinancing your loan can also cost you money through various fees such as a Credit Report fee, Loan origination fee, Appraisal Fee etc.

However, if the option of refinancing your mortgage yields a saving on your interest payments or paying off your loan sooner, you should definitely consider it.

Another factor worth considering is your credit score. If your credit score increases it might be a good time for you to consider refinancing your mortgage in order to gain a better interest rate.

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