Buying a Home in Salt Lake City, UT


To Refinance or Not to Refinance?

big question markMany homeowners are tempted to refinance at interest rates that haven't been this low since the 1970s.

Well, should you? Or shouldn't you?

The general rule of thumb has been to refinance if you can save more than 1% on the rate (with no points or fees other than an appraisal, Title Insurance, and re-establishing an escrow account). You also generally want to be planning on staying in the home for at least another few years, as it will usually take a year or two to recoup those costs. (MORE, if you pay origination fee and junk fees.)

I read an interesting article today by a Dr. Steve Sjuggerud who gives contrarian wealth-building advice.

His recommendation is that "The last person you want to get your interest-rate forecast from is your real estate agent!"

I would agree. Most real estate agents (including myself) simply cannot forecast the interest rate. I highly doubt that Dr. Sjuggerud can forecast the interest rate either (with any specificity), but let's hear what advice he would give you:

  • He suggests that mortgage rates could go "much lower".
  • He plants seeds that suggest that he thinks you should hold out for 3% or below.
  • He recommends refinancing into an Adjustable Rate Mortgage (ARM) and then switching to a 30 year fixed rate once the Fed raises the short term rate.

The only problem with his strategy, (OK, maybe not the only problem, but a real one and a big one for consumers to consider) is that if your property value declines (Sorry, but you have heard that most of the country is in a declining market, right?), you may not be able to refinance into that 30 year fixed rate mortgage...

That's exactly the problem with Arizona's real estate market right now. Property values are downfrom their peak at up to 50% in some markets. No lender will loan you 200% of what your home is worth... so very few owners can take advantage of today's rates.

As "bad" as 5% might seem to Dr. Sjuggerud, many people have 6, 7, 8 & 9% mortgages right now. Many of those people are on ARMs, just like this guys suggests! Those whose property values have declined significantly cannot refinance into today's "terrible" 5% rate.

I'm not saying that rates won't go lower... I hope they do!

But be aware that waiting to refinance as property values decline may not be the smart decision. Getting into an ARM while property values are on the decline might not be the smartest thing to do... even if rates do dip lower.

In some markets, waiting for that 3% rate might just keep you from being able to refinance your home at all. And if the rate does get down that low, why not refinance again? If you can't, you wouldn't have been able to if you had waited... so you don't really lose.

Get a good idea of what the property values are doing in your area, evaluate your current rate and the current options you have to refinance. If the rate isn't low enough for it to make sense... don't do it. If it is, why wait for something that may or may not happen?


If you are buying a home in Salt Lake City or the Surrounding Area, make sure you get an Agent on YOUR side of the transaction!

If you have excellent credit and will be buying a $300,000-$800,000 home in the next 90 days and would like an agent who will work exclusively for you, call us at (801) 969-8989 or contact us via the link on this page.

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Comment balloon 5 commentsBenjamin Clark • March 25 2009 01:48PM


Well put, Benjamin. We have similar issues in Central Oregon.

Posted by Lisa Broadwater, GRI, CDPE - Bend, Sisters, Tumalo, Redmond (Cascade Sotheby's International Realty) over 11 years ago

Benjamin - Thanks for posting. You made a good point about the problems of refinancing in a declining market..

Posted by George Bennett, Inactive Principal Broker, GRI (Inactive) over 11 years ago

I give my former buyers amortization tables for hypothetical rates to refinance.  Then they can figure it out for themselves. 

With respect to timing, the buyer has to look at their own comfort level for taking the risk of waiting.


Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley,, MD & VA Homes and Real Estate) over 11 years ago

The bottom line is that nobody can foretell what will happen to the rates. I'm in the same boat. Watching the rate... If it gets to a certain point, I'm likely going to refinance. But I don't have an ARM and I don't need to refinance. I also may sell my home in the next 2 or 3 years. So I'm just watching. Every borrower needs to look at their unique situation, considering the market around them and make the best choice among the alternatives...

Wish there was a 10% reissue rate on title insurance for refinancing... Funny how when the lenders sell your loan they don't require a new policy, but when you refinance, they do... The ownership never changed hands... Sure the lender did, but it does when your loan gets sold around too...

Can anyone explain that one to me?

Posted by Benjamin Clark, Buyer's Agent - Certified Negotiation Expert (Homebuyer Representation, Inc.) over 11 years ago

There are so very many personal factors to consider in making the decision of whether or not to refinance. However, there are some general rules applicable to everyone. You've pointed these out very nicely. Thanks!

Joel Carson
Prudential Utah Real Estate

Posted by Joel Carson over 11 years ago