Buy now refinance later! Lenders offer homebuyers free refinancing deals to soften the blow of soaring mortgage rates – but experts urge caution

Rising mortgage rates have chilled the U.S. real estate market and deterred many potential buyers from moving.

But lenders are reportedly trying to sweeten the deal by offering free refinancing down the line.

Such agreements mean that a borrower takes out a mortgage at current rates, provided that he can refinance in the future without paying a fee, usually worth between 2 and 6 percent of the entire loan.

The deal assumes that mortgage rates – which are currently at their highest level in decades and closer to 8 percent – ​​will fall over that time.

However, experts are urging homebuyers to think carefully before agreeing to a ‘buy now, refinance later’ deal.

Rising mortgage rates have chilled the U.S. real estate market and deterred many potential buyers from moving. Figures from the government-backed lender Freddie Mac show that interest rates are heading towards 8 percent

Jacob Channel, senior economist at Lending Tree, said mortgage rates are unlikely to fall to the lows seen in recent years.

Jacob Channel, senior economist at Credit boom, told DailyMail.com: ‘No one can predict the future, but mortgage rates are unlikely to return to the record lows set by the pandemic in our lifetimes. It was so unprecedented.

‘It is more likely that they will fall to around 6-6.5 percent by the end of next year and in 2025.

‘Many lenders do not cover the full cost of refinancing, many only offering a $1,500 credit, which is not enough for most loans. But if it’s not going to cost you anything, take the deal. Always check the fine print.’

Generally, buyers agree to a rate for the entire term of their 30-year fixed loan and do not benefit from falling interest rates.

If they do want to refinance to take advantage of lower rates, the average owner will pay $2,375 for a single-family home, according to 2021 data from Closing Corp.

But as the current market begins to slow due to buyer anxiety, lenders are offering various forms of “buy now, refinance later” deals.

For example, Strengthen offers no-fee cash-out refinances with no appraisal fees. CrossCountry Mortgage offers a lender credit of up to $1,500. But these credits often have an expiration date of a year or two, meaning they can become useless if interest rates don’t drop within that time frame.

And to qualify for these deals, some lenders offer a higher-than-average upfront rate, with the understanding that this may drop.

Channel, of Lending Tree, warns: ‘For these deals I always say that buyers should be confident that they can cover the higher rate for a longer period of time.

“If you think you can pay a higher interest rate over the next two years, but you’re relying on interest rates falling, then I’d say now is probably not the best time to buy.”

Homebuyers today have to pay $500,000 more for a 30-year mortgage than they would have two years ago after interest rates rose to 8 percent

But as the current market begins to slow as nervous buyers are afraid to make a move when interest rates are so high, lenders are offering various forms of “buy now, refinance later” deals.

If a buyer refinances with their current lender, they will also likely still pay third-party fees for services such as an appraisal. According to the National Association of Realtors, the average price for a typical single-family home appraisal is $500.

In addition, buyers who see their credit rating deteriorate or their property values ​​significantly decline will also eventually become unable to refinance.

The comments come after reports that more homebuyers are now opting for adjustable-rate mortgages (ARMs), which gained a bad reputation thanks to their role in the housing market collapse of the early 2000s.

According to figures from the Mortgage Bankers Association (MBA), 9.2 percent of all loan applications last week were for ARM deals.