Marry the House, Date the Rate, Dump the Landlord
If you house-hunted anytime in the last 6 months, you heard somebody say “Marry the house, date the rate, divorce the landlord.” And you probably wanted to start saying it yourself because it’s super catchy. But is it good advice?
It’s no coincidence this fun phrase came into its own as mortgage rates reached 20-year highs. Fairly self-explanatory, it simply means you’ll be wasting no more money on rent and plan to commit to a home you’ll love, but you’re making no such promises to the interest rate.
You’re implying that later on, when rates drop, you’ll ghost your current mortgage in lieu of one that’s more your type. Is this a practical plan?
How long until interest rates drop again?
In 1980, with inflation skyrocketing out of control, the Fed raised mortgage interest rates to 15%. Rates didn’t get back down to 9% until 1989. But then again, inflation dropped from 3.7% in June 2000 to 1.9% in November 2021, and interest rates followed suit, dropping from 8% to 6.5% over the same period.
As of December 2022, inflation is hovering around 7%. It’s impossible to say for sure, but it will probably have to get down to 2% before we see a significant decrease in interest rates.
How soon can I refinance my new house?
You could probably refinance your mortgage at any time, but you need a good reason to do it, because refinancing can get expensive. The average cost is 3.5% of your home’s value, so it would cost about $17,500 to refinance a $500,000 loan.
If you had a 7% interest rate on your mortgage, and refinanced it at 6%, you would save $417 a month in interest. That’s nothing to sneeze at, but it would take you 3.5 years to break even.
When does it make sense to refinance?
The refinancing rule of thumb is that you want your new interest rate to be at least 1% lower than your old interest rate. The greater the drop, the shorter time it takes to break even on the cost to refinance.
According to the National Association of Realtors, the average homeowner buys a new house every 10-13 years. If you’re not going to be in your house that long, counting on a refinance down the road may not be such a great idea after all.
