The concept of a “strike rate” in the mortgage world characterizes a crucial financial target for existing homeowners and prospective buyers in order for borrowers to make informed decisions based on fluctuations in the housing market. This strike rate is carefully calculated from a concoction of closing costs and the expected duration of owning a home to help ensure that a new loan offers a tangible and justifiable financial benefit rather than a shot in the dark.

For the thoughtful homeowner considering refinancing* their existing mortgage, a strike rate is essentially the interest rate at which it becomes financially sensible to begin the refinancing process. Similarly, for a buyer shopping for a new home, a strike rate serves as an indicator of when it may be a financially viable time to enter the market. When property prices are high, a homebuyer might identify a strike rate that, in light of their financial capacity and considering the costs of maintaining the mortgage and property, is the sweet spot to make the overall cost of ownership sustainable, even in a seller’s market. This strike rate allows them to define a point of financial comfort and strategic decision-making, helping to prevent impulsive purchases and ensuring they act only when market conditions align with their long-term goals.

Here’s how to determine a strike rate that may work for you:

Identify Your Goal

The process begins with clearly identifying your goal: whether it’s to reduce monthly payments by refinancing an existing mortgage, to acquire a new property, or to access your home’s equity via a cash-out refinance. This is the best way to pinpoint what you are trying to achieve.

Calculate the Break-Even Point

Once your objective is defined, the next crucial step is to calculate the break-even point. This involves meticulously tallying all the costs associated with the transaction – such as closing costs, appraisal fees, and origination charges – and then comparing them to the projected savings gained from a lower interest rate over the life of the loan. This break-even analysis reveals how long it will take for your savings to recoup the initial expenses.

Set Your Strike Rate

With this information, you can set your strike rate. This is the specific interest rate that, once reached, makes achieving your identified goal not only worthwhile but also aligns with your financial situation. For example, refinancing only if rates drop by 0.5% or more.

Monitor the Market

To ensure you don’t miss this opportunity, it’s essential to monitor the changes in the housing market by staying in regular contact with your loan originator and tracking mortgage rate trends. Don’t have one yet? Talk to one of our professionals today to get started!

Be Ready to Act When the Strike Rate Hits

Finally, when market interest rates reach or dip below your predetermined strike rate, you will be prepared to act and can move swiftly to lock in terms that align with your financial goals.

Having a predefined strike rate helps remove uncertainty from financial decisions and ensure disciplined and confident timing. Whether refinancing to save money or buying at the right moment, this strategy helps homeowners and buyers maximize value while avoiding impulsive moves in order to secure the best possible outcome for your financial future.

*By refinancing an existing loan, your total finance charges may increase over the life of the loan. Additionally, any equity you cash out during the refinance will be added to your mortgage balance. Please note that rates are not guaranteed and will depend on your credit history at the time of application.