As interest rates rise, Sec. Galvin warns homeowners to refinance now

BOSTON — A group of friends recently convinced Brian Keeley to refinance his mortgage.

“I started getting the ball rolling once they said the rates were down to 2.5, 2.6%,” Kelley said. “I figured, why not take advantage of it?”

Keeley bought his Woburn home in 2016 with an interest rate of 3.5%. When he refinanced several months ago, he locked in a new rate of 2.8%. He said that difference is saving him almost $200 a month.

“If it’s going to save money, you can’t not do it right?” Keeley said.

Thousands of homeowners like Keeley have taken advantage of the historically low-interest rates. But the time to save may be running out.

“I think you’ll see rates go up significantly,” Sec. of the Commonwealth William Galvin said. “I think there’s a sense rates will stay low and [homeowners are saying] ‘I have time.’ You don’t have time.”

The Federal Reserve indicated in September interest rates could begin rising as early as November because the economy has recovered enough for the central bank to begin dialing back on emergency aid.

Freddie Mac reported last month the average rate for a 30-year mortgage jumped from 2.88% to 3.01%. The government-sponsored mortgage company said mortgage rates are rising on all loan types as the 10-year U.S. Treasury yield reached its highest point since June.

“We expect mortgage rates to continue to rise modestly which will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year,” the report said.

Galvin is also concerned minority homeowners aren’t jumping on the lower rates. A Freddie Mac report released in May showed while 32% of White homeowners refinanced between Apr. 2020 and Jan. 2021, only 19% of Black homeowners and 23% of Hispanic homeowners did the same.

“We’re saying to people now is a good time to do it. Don’t wait until next year. Unfortunately, I don’t think the opportunity will be there,” Galvin said.

Stoneham real estate agent Mike Urban said one side effect of rising interest rates could be more buyers entering an already crowded housing market. Urban predicts people will panic when they see rising rates and rush out to buy a home.

“People are obviously concerned with rates going up,” Urban said. “They need to get a game plan and figure it out before they get too high and they get priced out of the market because if the rates get too high, their borrowing power goes down.”

If the idea of paying closing costs and other fees turns you off, there are options to avoid paying too much out-of-pocket, according to Greg McBride, senior vice president and chief financial analyst for Bankrate.com.

“Oftentimes borrowers are able to roll those closing costs into their loan balance,” McBride said.

McBride said many lenders offer something called a no-closing-cost mortgage.

“You get a slightly higher rate, you don’t have to pay any of those costs out-of-pocket and you don’t have the higher loan balance as a result,” McBride said.

Bankrate.com created an online mortgage finance calculator homeowners can use to determine how much can be saved by refinancing their current home loan.

Still, CrossCountry Mortgage Senior Loan Officer Lacey Faria said refinancing is not for everyone.

“It can be easy for a homeowner to automatically think refinancing at today’s rates is the right move for them,” Faria said. “But there are many factors to consider, including whether the rate reduction will be enough to offset the total finance charges over the life of the loan.”

“As with any borrower who comes to us for a mortgage, we take a close look at each individual’s specific situation before we recommend moving forward with a new loan. It has to make sense and be beneficial for them financially, otherwise, we’ll advise against it,” Faria said.

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