Should I Refinance My Bay Area Home Mortgage in 2022?

For many Bay Area homeowners, 2022 could still be a good time to refinance a mortgage loan. Thirty-year mortgage rates are still at historically low levels, while home prices have increased substantially. These trends have put many homeowners in a good position to refinance their Bay Area homes in 2022.

But those record-low mortgage rates may not last. According to the latest forecast from Freddie Mac, the average rate for a 30-year home loan could rise to around 3.7% by the end of next year. It’s currently hovering near 3.1%, as of mid-December 2021.

But low rates alone are not enough to justify refinancing a Bay Area home mortgage loan. When deciding whether or not you should refinance your house in 2022, you should first identify the “break-even point.” This will allow you to determine when the savings will begin.

5 Common Reasons for Refinancing a Home

Bay Area homeowners refinance their homes with different goals in mind. Usually, they’ll do it for one (or more) of the following reasons:

• To lower the interest rate and monthly payments.
• To reduce the term (length) of the loan, in order to pay less in total interest.
• To switch from an adjustable / ARM loan to a fixed-rate mortgage.
• To consolidate and pay off other debts by using the equity in the home.
• To tap your equity for a remodeling project, a college tuition, etc.

You can even combine two or more of the items on this list. For instance, you might be able to refinance into a lower interest rate while also switching from an adjustable to a fixed mortgage loan.

Today, we’ll focus on the #1 reason why some homeowners will refinance their Bay Area homes in 2022 — to reduce their monthly payments.

Will 2022 Be a Good Time to Refinance in the Bay Area?

With fairly low mortgage rates and rising home values, 2022 could be a good time to refinance in the San Francisco Bay Area. This is especially true for homeowners with an existing mortgage rate that’s significantly higher than today’s rates.

If you are refinancing to lower your payments and save money over time, you can do some basic math to determine your break-even point. To do this, you would compare your upfront costs with your long-term savings.

At a minimum, you’ll need to answer three questions:

1. How much will you be able to lower your monthly payments after refinancing?
2. How long do you plan to stay in the home and keep the new mortgage?
3. How much will you pay in closing costs when you refinance into the new loan?

Based on these three items, you should be able to calculate your break-even point. This is the point at which your accumulated monthly savings (resulting from the lower interest rate and payments) begin to exceed the amount paid in upfront closing costs. In most cases, this is how you would decide when to refinance a mortgage loan.

When Will You Break Even?

Some homeowners believe that refinancing makes sense as long as they can secure a lower interest rate on the new loan, thereby reducing their monthly payments. But depending on the situation, this alone might not be a good enough reason to refinance.

You’ll want to do the math to ensure that your monthly savings will eventually surpass the amount you’ll pay in closing costs. This is the key to deciding if you should refinance your Bay Area home in 2022.

Note: This article assumes that you are refinancing solely for the purpose of lowering your monthly payments and saving money. If you have other goals in mind, portions of this article might not apply to your situation. We can help you determine if 2022 will be a good time to refinance your Bay Area home. Just call during our business hours to chat, or send an email anytime!