For individuals who are considering refinancing their mortgage or buying a new home, the housing market’s complexities can be overwhelming — even more so with fluctuating interest rates adding to the uncertainty.

Jeffrey M. Ruben, the President of WSFS Mortgage, offers valuable insights on both refinancing and homebuying, and his key considerations serve to help people make well-informed financial decisions.

When to Refinance & Costs to Consider

Refinancing your mortgage can be a smart move to reduce monthly payments, secure a better interest rate, or shorten the loan term. However, it’s crucial to understand the right timing and the specific financial goals you want to achieve.

“Deciding when to refinance involves more than just searching for a lower rate,” said Ruben.

If interest rates drop significantly compared to your current mortgage rate, refinancing could lead to substantial savings. Even a slight reduction in interest rates can lead to lower monthly payments and overall savings on interest.

Another reason to consider refinancing is if your financial situation has improved since you initially took out the mortgage. A higher credit score, a better debt-to-income ratio, or increased home equity may qualify you for a lower rate or better loan terms. If you have an adjustable-rate mortgage (ARM), switching to a fixed-rate mortgage could provide more predictability and stability in your payments, especially in a volatile interest-rate environment.

While refinancing can offer financial benefits, it’s essential to consider the associated costs. Closing costs — including appraisal fees, title insurance, and lender fees — typically range from one to three percent of the loan amount. Make sure to calculate how long it will take to recoup these costs through your monthly savings. If you plan to sell your home in the near future, refinancing may not be worth the upfront expenses.

Managing High Interest Rates in a Home Search

Higher interest rates mean higher monthly mortgage payments, which could affect how much home you can afford. When calculating affordability, consider not just the monthly payment but also other expenses like property taxes, insurance, and maintenance.

One strategy to mitigate the impact of rising rates is to lock in a rate early in the homebuying process. Many lenders offer rate-lock programs that allow buyers to secure a mortgage rate for a set period, even if rates continue to rise. This provides peace of mind and stability while you finalize your home search and make an offer.

“Get pre-qualified and pre-approved, so you’re ready when the right home becomes available,” said Ruben. “Pre-qualification will help give you a rough estimate of how much you may be able to borrow, while pre-approval is a more thorough step in the process requiring more documentation to determine how much house you can afford.”

Ruben encourages homebuyers to explore various loan options tailored to their financial needs. For instance, ARMs can offer lower initial payments, though they may increase over time. While ARMs carry more risk, they could be an attractive option if you don’t plan to stay in the home long-term. Additionally, consider low down payment programs like FHA or VA loans if you qualify, which may help offset the challenges of higher rates.

Dos and Don’ts of Homebuying

Dos:

• Get Pre-Approved: Before beginning your home search, it’s crucial to get pre-approved for a mortgage. Pre-approval gives you a clear idea of your budget, making it easier to narrow your search and make stronger offers.
• Work with a Knowledgeable Real Estate Agent: A good agent is an invaluable resource, helping you navigate negotiations, pricing, and the intricacies of contracts. They can also provide insights into market conditions and help you find the best home within your budget.
• Save for Closing Costs: Many first-time buyers focus solely on the down payment and overlook closing costs. These expenses can include loan origination fees, title insurance, and property taxes. Be sure to budget for these additional costs, which can amount to two to five percent of the home’s purchase price.
• Conduct a Home Inspection: Never skip a home inspection. It’s a crucial step to uncover any potential issues with the property, such as structural damage, plumbing issues, or electrical problems. An inspection gives you the chance to address these concerns before finalizing the purchase.

Don’ts:

• Don’t Overextend Your Budget: While it’s tempting to stretch your budget for a dream home, Ruben advises against overextending your finances. Stick to what you can comfortably afford, considering all related costs like utilities, maintenance, and taxes. Stretching your budget too far can lead to financial strain down the line.
• Don’t Make Large Purchases Before Closing: Once your mortgage application is in progress, avoid making any large purchases, such as new furniture or a car. These can impact your credit score and debt-to-income ratio, potentially jeopardizing your mortgage approval.
• Don’t Skip the Fine Print: It’s essential to review all documents carefully, including the mortgage terms, closing disclosures, and contracts. Understanding every aspect of the agreement will help avoid surprises later on.

Learn more about how WSFS Mortgage provides world-class service, local decision-making power, and a range of mortgage options to achieve your goals.