Interest Rates Are Dropping Is It Time to Refinance My Vermont Property?

Many Vermont homeowners who closed on their properties in the last 2 years have endured some of the highest interest rates in the past 20 years, when they exceeded 7.5% in late 2023. With rates now declining below 7%, many homeowners are debating whether it is time to refinance their mortgage in the hopes of saving money on their monthly mortgage payments. In order to fully understand the numbers however, Vermont property owners should look beyond the interest rate declines so they can understand the actual cost of refinance before committing to a new loan.

How Long Do You Intend to Own the Property?

The first question you should ask when analyzing refinance options is how long you intend to own the subject property. If your intent is to sell the property in the next 5 years, it may not be worth the cost of refinancing (more on that later). If you intend to hold the property for the long term, accepting a reduced interest rate may be worth the upfront cost.

How Much Lower Should My Refinanced Rate Be?

A general rule, is that in order to make a refi worthwhile, you must enjoy at least a 1% reduction in your interest rate. Given that rates currently sit at 6.69% this would mean that your original mortgage would need to have been 7.75% (as they were in November 2023) in order for a refi to make financial sense.

What is the Cost to Refinance?

Fees for a refinance can vary, depending on your location and the financial institution you are using. It is also important to understand that commercial refinances can be more expensive then residential, as often times banks will require points to be paid (a percentage of the refinanced amount) along with increased prices on appraisals as compared to residential refis. These closing costs can easily exceed $10,000 in certain circumstance. Be sure to get a good faith estimate of closing costs early in the process so you can understand the ball park costs and compare them with the benefit of the reduced interest rate.

Simply because Vermont real estate rates are dropping does not mean that they will continue to do so. Mixed messages from the Federal Reserve on when and how much rates will continue to drop remains an open question. If you are considering a refi in Vermont, don’t fall into the interest rate trap, without running all the math to determine whether it makes sense now, or, if it is better to wait it out for a better deal.

The content in this post is for information purposed only and should not be considered legal advice. Any specific legal questions should be directed to a Vermont licensed attorney.