As a property owner with multiple residences, I always keep an eye on interest rates and the 10-year yield. With the recent drop in mortgage rates, it’s a good time to consider refinancing if you haven’t done so in a while. You might be surprised at how much you could save.
Earlier this year, I refinanced one of my rental properties and managed to secure a 2.625% rate for a 5/1 conforming ARM. This means I have about 4.5 years before my interest rate could change. My monthly payment is around $2,800, with $1,350 going towards the principal. I’m not too concerned about potential rate increases in the future as the property brings in $4,500 a month in rent.
Looking back, about four years ago, interest rates shot up as investors moved away from Treasuries in favor of equities, seeking higher returns. This was also a time when the Fed was expected to taper and inflation was predicted to rise, leading to a sell-off in bonds and a rise in rates. At one point, the 10-year yield jumped to nearly 3% from 1.62% just six months prior. This had a significant impact on bond funds, including REITs.
However, Treasuries bounced back as investors sought safety with stock markets at record highs and government in disarray. Fast forward to the global pandemic, rates dropped significantly in 2020, creating another opportunity for refinancing. Banks have also reduced their lending margins, meaning they’re not charging as high a spread between their lending rate and cost of funding due to increased competition.
When I refinance, I always check with my main bank and online through Credible, which has one of the largest networks of mortgage lenders on the web. This helps ensure I get the most competitive mortgage rate possible.
Looking at recent mortgage rates, it’s clear that now is a good time to refinance. I remember back on June 2, 2016, I was thrilled to have finished refinancing one of my properties, getting my 5/1 jumbo ARM of $850,000 down to 2.375%. With rates declining even further this year, I’m considering refinancing this property again.
I’m a big fan of ARMs because interest rates have been on a downward trend for over 35 years. There’s no need to pay more because interest rates should stay low for a long time.
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Unfortunately, mortgage rates have risen quite a bit in 2024. But with inflation slowing down and the Fed expected to cut rates three times this year, getting a lower interest rate on a mortgage is becoming easier. So, stay patient.
