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Mortgage interest rates are well below where many experts predicted they would be this time last year, going from north of the 5-percent mark in 2018 to 4.09 percent this week on the 30-year fixed. For today’s homebuyers and refinancers, that means saving hundreds or even thousands of dollars in annual interest payments. For their counterparts from last year, that could mean feeling like they should have waited.

It all comes down to timing, or lack thereof.

But, before you congratulate or scold yourself (depending on what rate you have), it’s important to remember that you have options when it comes to your mortgage. The options, however, get more attractive with optimal credit scores and equity.

What to weigh before you refinance

Refinancing is one way to shave your monthly mortgage payment by locking in a lower rate, but there are a few things homeowners need to consider first.

When rates fall, make sure they’ve fallen enough to make sense for you to refinance your mortgage, Karan Kaul, research associate at the Urban Institute, points out.

The first thing is cost. Refinancing can be expensive, often costing between 2 and 4 percent of the balance on your mortgage in fees. So, if you owe $300,000 on your home and it costs 3 percent to refinance, you’re looking at $9,000 to recoup before you see a penny of savings.

“You don’t want to get a mortgage that saves you $15 per month, but costs you $5,000 upfront,” Kaul says.

There are instances when the cost makes sense. If your credit has improved significantly between the time you got your mortgage and now, the difference in rates solely from having better credit might be enough to make the hefty price tag worthwhile.

For example, someone with a 30-year fixed rate $300,000 mortgage with a 7.09 percent interest rate can save $538 per month if the rate drops to 4.09 percent. It would take less than two years in interest-rate savings to add up to $9,000, or the fee to refinance. Over time, the savings would be substantial, especially if you plan on living in the house for five years or more.

If the numbers — your credit score and cost — don’t quite justify refinancing now, consider getting your credit in order for a potential refinance down the road. There’s always the possibility rates will go up, but they likely won’t stay up for many years, especially if the economy hits a recession, something that hasn’t happened in a decade.

Leave the predictions to the horoscope column

If you’re waiting for mortgage interest rates to drop more or for home prices to start falling before you buy, you could miss the boat. Timing the market is something experts spend years doing and still don’t get it right, Kaul says.

The smarter move, for people who are trying to maximize their dollar, is to save up for a down payment and buy a house you want to live in for at least five years. The more time you’re in a house, the more equity you’re likely to build, which has a positive effect on your bottom line.

“I’m a strong believer in homeownership but I’m not a strong believer in timing the market — if you can find a house you can afford, buy the home. Don’t wait, assuming house [prices] will fall in six months or a year — they may very well go up. Predicting house prices is as difficult as predicting the stock market,” Kaul says.

At the same time, lower interest rates can spur uncertain consumers into action, says Joe Tyrrell, executive vice president of strategy and technology at Ellie Mae.

According to Ellie Mae’s recent Millennial Tracker report, millennials are closing loans at the fastest rate in more than four years, likely due in part to lower interest rates, according to Tyrell.

“With the average 30-year note rate on loans closed by Millennials dipping to 4.75 percent in March, the lowest percentage since April 2018, this may have been the nudge that many prospective homebuyers were looking for,” Tyrell says.

More money down means lower monthly payments

Interest rates and home prices might not be in your control, but how much you save for a down payment is. A major way to save on housing costs is to put 20 percent down and avoid private mortgage insurance, or PMI. On a conventional loan, PMI can cost up to 1 percent of the loan each year you have less than 20 percent equity in the home. That’s $3,000 per year or $250 per month on a $300,000 loan.

However, saving up for a down payment can be challenging, especially if you’re already paying rent and other costs associated with housing, like utilities. For many people, pulling together a down payment is the highest hurdle to homeownership.

“Every borrower’s situation is unique. But according to our 2019 Ellie Mae Borrower Insights Survey, the number one reason millennials report they are currently renting is because they haven’t saved enough money to buy,” said Tyrrell. “Interest rates may not dictate whether or not a borrower will buy a home, but they may influence how much house they can afford and where. The same can often be said for home prices.”

There are down payment assistance programs across the country, so be sure to check what’s available in your state.

For frugal-minded home shoppers, prepare yourself before you look for a mortgage. Get your credit score in top shape, so that you can get the most competitive rate. Consider buying a more economical house to begin with, which might speed up your ability to buy — you can later use the equity you build in your starter home as a down payment for a more expensive home, if needed.

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