Stacy Smith 00:00
Is this thing on?
Erin Spencer 00:00
Yes. Hi, I’m Erin Spencer.
Stacy Smith 00:04
And I’m Stacy Smith.
Erin Spencer 00:06
And this is between two brokers a podcast about real estate, business and life.
Stacy Smith 00:11
Hang in there. We’re smarter than we look. Hello everyone and welcome to another episode of between two brokers. It’s your lucky day we have our mortgage guru Bill Payne with us here to answer a listener question. Okay, so we had somebody email us. Keep all of your questions coming or DM us on Instagram at @betweentwobrokers. Here is the question Bill. I’m a homebuilder. And over the summer and fall, I had clients pushing for their budgets to be produced really fast as they were hoping to get locked in on a loan before another possible hike. But now it’s the opposite. I’m starting a build and the client shifted to using cash for the first few stages of the build. I believe this is because they’d like to delay closing on the loan until they see rates will go down over the next few months. This week, we had a really minor drop in the Fed rate and revise shot up by 20%. By the way, we’re recording this on December 14, or 15th. I’m surprised by this, I would think lots of other people would be thinking like my current client and would want to wait to see if rates continue to fall before refinancing, instead of pulling the trigger at the first drop. Do you think the surge of reifies in this case is because a lot of people needed relief? Or do you think that mortgage lenders are telling their clients to go ahead and do it since they might not anticipate the rates to go down in a significant way in the coming year? Bill? Take it away?
Bill Payne 01:52
Well, it’s it’s nice that we’re even being asked this question that means interest rates are going in the right direction. It’s been a couple of years. So I think it is correct to believe interest rates will continue to decline. So I think it can be premature to go ahead and refinance now. But I say that without knowing the full scope of the circumstances surrounding Why, what’s going on there. The 20% increase in refi. And refinances is just 20%. month over month, so it’s still not a huge surge.
Stacy Smith 02:28
Oh, okay. That makes much more sense. Yeah. So it’s not 20% of homeowners are refinancing, because that would be crazy.
Bill Payne 02:35
would be like, yeah, right. It’d be like maybe five people refinancing, right? Whereas only two people did right the previous month. Again, a great trend because interest rates are going down. So if I were to give someone advice, I’d say hold on, be patient. Yeah, wait as long as you can, for the instance of the buyer who’s building a home. Continue to be patient don’t pull the trigger too quickly. And I think you’re going to come out with the numbers and the interest rate looking a lot better than it originally was when you started this project. So all sound advice to just use cash now and fund it get the loan later.
Stacy Smith 03:15
So where are interest rates ballpark right now?
Bill Payne 03:40
they’re going to be in the this is with no points. Meaning you can always pay points to buy an interest rate down, it’s really expensive, it’s a lot cheaper to let interest rates naturally decline and then just incurred the closing costs once rather than paying a lot more at closing to buy your interest rate down. That said, we’re seeing Most loans with sixes in front of them. It’s been, I don’t know, 910 months since we saw that, right? And the question will be how much lower? Do they get? Right? And how quickly? Well, and how will how do you answer that when people ask you that? I mean, do you think that they’re going to be in the sixes all the way through? 2024? Maybe we see them dip into the fives or is that 2025? We will see them hanging around in the sixes for at least the first half of 2024 If our guessing Yeah. Whether or not they get to the fives. I think that’s a real stretch, it would mean that the Federal Reserve would really start cutting the Fed funds rate towards the middle of the year which I don’t expect them to do. The Fed funds rate indirectly impacts mortgage interest rates. So if the economy starts to really slow down down and you hear the word recession tossed around a lot more than Yeah, we that would promote or push interest rates, mortgage interest rates down to possibly the fives. for our own sake, I hope that doesn’t happen. But maybe later in the year we could get there. And that’ll be the question of 2024 is like, what the hell’s happening with the economy? Is it a soft landing? Or is it going to be a little more dicey? And does the Fed have to become active? Rather than sitting on the sidelines being a referee? Do they have to now in cage in the fight to stave off a recession by lowering interest rates? Hopefully the answer is no, they can stay on the sidelines. But given what, we are still unwinding a freaking pandemic, you know, and and a lot of things happening globally, that impact our economy here. is going to have to be a wait and see to see if soft landing or is it a hard landing.
Erin Spencer 06:01
Stacy and I went to this economic outlook presentation the other morning, economist His prediction is that interest rates will be around 6.1%. Like, that’s the lowest that they’ll go. And then in 2025, maybe we’ll see 5.7%
Bill Payne 06:38
I think that’s a fair guess. You know, Steve does a great job of trying to apply facts to what’s happening so we can wrap our heads around it. But to your point, yeah, it’s totally just a guess.
Erin Spencer 06:53
Talk about the refinance. Like, what does that look like when someone says how much is it going to cost me to refinance? And is it worth it now? Or should I wait? How do you answer
Bill Payne 07:02
Patience is the key. So the cost to refinance, generally speaking, will range from 3600 to 4400, depending on the size of the low, so that accounts for like costume appraisals, cost, underwrite loan costs of attorneys fees, you don’t want to incur that expense over and over. So the trick is to figure out when you we believe interest rates have bottomed out for an extended period of time. extended period of time, meaning they’ve hit a low point, and it’s unlikely to go any lower for the next six to 12 months. If you think of it like you’re walking down steps, that’s what I expect, and usually how interest rates behave. So you just want to wait till they hit the lowest step, then they’ll hang out for a while. And then maybe something weird or crazy happens in the economy, that will push them down even lower. So being patient, to see if they have bottomed out based on current economic conditions, will save homeowners money, because they’re not refinancing over and over again. This
Erin Spencer 08:31
When you’re quoting, a refinance, do you say you know it’s going to take you 16 months to reap the benefits of the upfront cost for it to make a difference in your mortgage?
Bill Payne 08:57
There’s a breakeven analysis. It’s easy to do, you can prepare it on an Excel spreadsheet. And like,
Erin Spencer 09:04
what’s the goal? How many months is like, yeah, this makes sense. And how many, you’re like now wait.
Bill Payne 09:09
if it’s six months or less, which if you have a large loans highs, it easily could be it’s a no brainer. If it’s 12 months, usually that means Okay, maybe not today. But we start the process of getting things aligned to refinance and close quickly. So that if you have just one or two days where there’s a little eight or quarter percent drop, you take advantage of it and run with it. If it’s 18 months plus, then that becomes debatable need to understand what the reason behind the refinance is it may not just solely be to lower the interest rate it could be to pull some cash out and try to project out what the economy is going to do because 18 months break Even is still not bad. But if there’s a possible trigger for interest rates go down, lower within the next six to 18 months, you may still want to pause and see if that happens
Erin Spencer 10:11
or that you might sell your house. And then yeah, yeah, absolutely how to make sure you’re gonna stick around to reap the benefits.
Stacy Smith 10:18
Perfect. Bill, thank you so much for answering that question. If you guys have any other questions for Bill, he is our regular podcast guests and his cell phone number is 843-532-1392 for all of your mortgage needs, please email your podcast questions podcasts at Smith spencer.com. You can find him on Instagram and DM him directly at at Bill W. Payne. That’s it. Okay, great. Now that and you can always DM us and we’ll put you in contact with Bill. So thanks, Bill for coming on. And we’re gonna have you on for another episode soon. So you can tell us all sorts of other interesting facts about the wonderful world of mortgages. Thanks for tuning in. Don’t forget to rate review, review and subscribe.
