When economic conditions change, smart homeowners keep an eye on mortgage rates to know the best time to refinance. The U.S. might be close to a new boom in refinancing, which could be a great opportunity for homeowners. Understanding what’s driving this potential boom and how to get ready could make a big financial difference.

What’s Behind the Possible Refinance Boom?

Dropping Interest Rates:

Economists think the Federal Reserve might lower interest rates to increase economic activity. They raised rates when inflation increased to 40-year highs a couple of years ago to slow down economic activity and reduce inflation, which worked. Consumers are not spending money on non-essential items as much as they used to, businesses are not hiring at the pace they used to be, and the unemployment rate is higher now than it has been since COVID. It is believed the first-rate cut will be in September, with others to follow.  This will lead to a wave of refinancing as homeowners look to lock in savings through lower mortgage rates.

More Home Equity:

In recent years, many people’s home values have gone up a lot, leading to more home equity. This could help homeowners get better refinancing terms, like lower interest rates and no need for private mortgage insurance, or an appraisal. Home equity could allow you to borrow some of it to pay off higher-interest-rate debt like credit cards, make some home improvements, finance higher education for a child, or take a much-needed vacation. The vacation idea might be a little reckless, but the point is, it’s your equity, you get to choose when to access it, what to do with it if anything at all.

How Metro Detroit Homeowners Can Prepare for the Refi Boom

Here’s how Metro Detroit homeowners can get ready in case this opportunity comes:

Check Your Credit Score:

Your credit score is important for getting the best refinancing rates. Get a copy of your credit report and make sure there are no mistakes. You can obtain your credit report through many resources, but my favorite site is myfico.com because the scores you get are the most similar to the scores you will have when a mortgage lender pulls your credit report. You can improve your score by paying off some credit card debt, not opening new credit accounts, and keeping up with all your bills. Facts!

Be Aware of Credit Trigger Leads:

When you check your credit score or apply for a mortgage, your information might be sold to other lenders as a “credit trigger lead.” This can lead to a flood of unwanted calls and offers from different lenders. To avoid this, you can opt out of these offers by visiting OptOutPrescreen.com. Doing this will reduce the number of unsolicited offers you receive.

Review Your Current Mortgage:

Look over the terms of your current mortgage, like the interest rate, loan balance, and how many years are left. Use online calculators to see how much you could save with different interest rates. This will help you decide if refinancing makes financial sense. The link to mine is here.

Get Your Financial Documents Ready:

Refinancing starts with reviewing your finances. Gather your recent pay stubs, tax returns if you’re self-employed, last 2 years of W2’s if you’re an hourly/salaried employee, one monthly bank statement, a copy of your most recent monthly mortgage statement(s), and any other documents unique to your situation that a lender will need to use to show that you can repay the loan. Having these ready will make the application process smoother.

Work With a Local Lender:

Don’t buy into the myth that refinancing with your current mortgage company will be the easiest way to refinance your home. Yes, they may have some information already that you would not have to submit, but do they really have your best interests at heart, or are they just looking for a sale? Did they ask about your long-term housing plans and consider those when making recommendations for a new mortgage? Are they easy to get a hold of when you have questions? Local lenders, especially ones that you have worked with in the past, are your best resource for information about refinancing and the local interest rate environment.

Think About the Long-Term Costs:

A lower interest rate sounds good, but you also need to consider the cost of refinancing. Closing costs can be 1-4% of the new loan amount, depending on how much you’re borrowing. Make sure the savings over time are worth these upfront costs. Also, think about how long you’ll stay in your home to break even on these costs. A good metric to use is to divide the total closing costs by the monthly savings (the difference between the current payment and the new payment). If it is 12 months or less, then you will recover the costs (break even) in the first year of the new mortgage making the savings benefit of the refinance greater than the cost to refinance.

Stay Informed:

Keep up with economic news and forecasts so you know what’s happening with interest rates. Timing is everything when refinancing, and staying informed will help you act quickly when rates drop. A local lender will work with you to find a target rate where refinancing makes sense and keep you informed to help you make the best decision.

In Summary

A potential refinance boom offers a great chance for Metro Detroit homeowners to save money and improve their financial situation. By getting ready now—improving your credit score, reviewing your mortgage, and talking to local lenders—you’ll be prepared to take advantage of lower rates when they become available. Stay on top of things, move quickly, and you could lock in major savings on your mortgage for years to come.