The “Marry the House, Date the Rate” strategy of house buying involves prioritizing the home itself over the interest rate. Essentially, buyers choose a home they love and then focus on finding a mortgage with the best rate possible. This strategy can be advantageous because it allows buyers to focus on finding the perfect home without being too constrained by interest rates. However, it is important to avoid certain pitfalls when using this strategy.
Thinking You Can Refinance Whenever You Need To
Let’s say you take the plunge and marry the home you’re in love with. Then shortly after, you notice rates start to drop. You are probably wondering when you can refinance. Well, that depends on your lender and the specific terms of your mortgage. Some have prepayment penalties, which occur if the lender charges fees for paying off your mortgage early—usually within the first three years of the loan.
Refinancing isn’t free. Closing costs range from 2-6% of the loan amount. So, you have to figure out if the savings from the lower rate will be more than the costs of refinancing. Reaching a break-even point can take a few years.
Not Letting Rates Drop Enough
It’s important to figure out what the magic rate will be to make refinancing work in your favor. A common rule of thumb is when interest rates are at least 0.5% to 1% lower than your current rate, you can consider it. However, this is just a general guideline that may not apply to every situation.
Refinancing is Not a Guarantee
Refinancing isn’t guaranteed for everyone, even when interest rates drop. You still have to meet basic loan requirements to qualify. So, before you marry your dream home, take a good look at your current income, expenses, and long-term financial goals to make sure you can make payments comfortably, regardless of being able to refinance.
If you’d like to explore your options when it comes to buying or refinancing a home, and to determine the best course of action to reach your financial goals, contact us at Three Rivers Lending today!