Economists and financial forecasters have been telling us to expect interest rates to rise for the past 5 years or more, yet rates resisted. Now they have dropped back down to a 3.625% range for 30 year fixed rate mortgages; even for jumbo loan amounts–loans above a $417,000 amount, that typically aren't bought or secured by government entities like Fannie Mae and Freddie Mac. The rates get even lower for 15 year mortgages, now closer to a 3% rate.
This can be a great opportunity for those wanting to buy a home. Most of 2015 saw rates bouncing between 3.75 and 4.125%. The payment differential between our current rates and what you may have could be a $60-85+/month in savings. This also means that those of you who bought a home a few years ago and possibly were required to pay for mortgage insurance can now consider refinancing your loan and remove this mortgage insurance premium while possibly lowering your interest rate too. Two ways to help lower house payment. Since much of our area has seen 9-15% appreciation, just in 2015, and similar rises in 2014 values, many of us have greater home equity than we anticipated. A 20% equity is required to remove mortgage insurance in most cases. If you still like your home there is no reason to sell it but you may want to consider refinancing it to remove this insurance premium or lower your payment or switch to a shorter term mortgage to help pay off your home sooner. .
One other consideration while rates are low may be to refinance your home and pull out some equity in your home to pay off other debts. I'm not a big fan of using our homes as a piggy bank but interest rates on credit cards, cars and other large purchases have been rising and those interest payments aren't tax deductible. Your home's interest rate is deductible, in most cases, and often at substantially lower rates than our other debts carry. As always, a conversation about your long term goals, needs and circumstances is wise to see what the best steps for you may be, but our homes are now back to, at or above their peak values and this can help you solve some financial planning issues.
If you are thinking you'd sell your home in the near future, refinancing may not make sense; but it is possible to do a no-cost refinance and while you won't get the lowest rates of today, you'd likely be at a 4-4.25% rate. That is still a very attractive figure and can help you reach other financial goals while not adding to your loan balance.
There is lots of talk about interest rates rising this year and I'd say it's stil likely they do, but for now, the rest of the world's major economies are struggling more so than the U.S. and this has meant large institutional lenders around the wrold are buying U.S. mortgage backed securities as a safe haven for their monies until the world's ecoomies reach calmer levels. I'm not expecting this to happen too soon, so it's likely rates stay in a narow range around 4% most of this year, with some dips, like we're seeing right now, presenting themselves to all of us as savings opportunities. Let me know if you'd like a recommendation for a good lender or to talk more about your specific circumstances. I'd be happy to help.
Almost all of this year the "fear" reportings have been warning us of interest rates rising as though this is such a horrible event. The Fed was supposedly going to do this in March, then certainly by June; I'd thought they'd do it in September, as did much/most of the financial markets. When they didn't raise them in September, we saw the worst stock market performance of this year; the Fed didn't do what most everyone expected they would. It looked like they may put this off until January, so the stock market rebounded. Now the Fed has raised rates and stock market rallied, minorly but positively, as the Fed did what it seemed they had to; raise rates. The overall economy has improved and if you don't raise rates now, when would you? If the overall economy declines in the coming year, they then have some room to move back down or ease on rates to try to spur on new investments.
So what happens now? Will rates continue a steady climb up? Will all interest rates rise? How does this affect me?
It's possible interest rates could rise but most rates already rose this year, for almost all of 2015 and yet it's turned out to be one of the strongest years for home sales and appreciation locally and nationally in 9 years and one of the strongest overall for sales as a whole. So, rising interest rates aren't a killer of the real estate market or home values.
In reality, real estate rates are set by the Fed at all but based on Bonds and Mortgage Backed Securities. While these don't operate in a vacuum, they aren't directly related, correlated or affected by the Fed. Often mortgage rates will move opposite of the Fed. The bonds and securities affecting mortgages are like all other investments, a factor of supply, demand and alternatives. It's possible interest rates will rise further in 2016 but not by any dramatic amount. In our local market, rates are hovering in the 4.125-4.25% rate. This might raise another .125-.25% in 2016 but what this means is your monthly mortgage payment might rise by $30-$60 per month, depending on the size of your mortgage and what rates you're comparing. While any rise is unwanted, it's not likely that $30-$60/month will change your ability to qualify or interest to buy or sell your home, if your true desire is to buy or move. Don't let the "fear reporters" run your life or your expectations. The market will continue to be strong in 2016 due to organic growth of population, strong employment and the returning buyers who've been sitting on the sidelines waiting for the credit, savings and employment to improve since the economic downturn of 2007-2011.
It is not likely that the Fed will raise their rates much, if any further, in 2016 as the bulk of the world's economies aren't doing as well as the U.S. and as we raise the Fed rate, the U.S. Dollar increases in value and we make our goods more expensive to the rest of world, hurting our companies and putting downward pressure back on stock values, the Dollar and our interest rates. These variables are all operating on tiny margins of stability, so only tiny shifts can be made without upsetting the balance of many, seemingly unrelated aspects to our economy.
The main point to recognize is that while I can no longer get you a 30 year fixed mortgage at 3.5-3.75%, I can still help you find a historically great rate, affordable to your needs and if you want the lower rates of 2014, we can find those in 7 year fixed mortgages, which might be as long as you may be in your next home anyway. If you plan to stay longer, then recognize the true nature of a low 4% interest rate and you'll see you're benefiting by the stronger economy, even if your monthly mortgage rises a little more than you hoped for.
Most of the local real estae market continues to thrive with price recovery in almost all areas strengthening to near or even above our economic recession data. February saw an increase in listings but that was matched with an increase in sales. While the statistics say we have higher inventory than last February, that's not matched with real life experience in the field, as any active buyer in the urban marketplace can attest. Prices are rising as multiple offers are once again the norm.
If 2015 follows the activity pattern of 2013 and 2014, which is my prediction, we will see the market calm in the summer months as buyer fatigue sets in and vacation times begin. Today's stock market decline was led by fears of the Fed raising interest rates as our national economy continues to rebound. This could lead to more upward pressure on home loan rates, already up about 3/8% so far this year, and that will likely lead to increased buyer/buying pressure by people trying to lock in what may be the last of our long-term rates in the 3% range. Recognize that a long term rate in the 4's is hardly a bad thing but, as always, people want to save money when and where they can, so jumping now is likely a stronger impulse for many buyers.
My caution would be that to buy something that doesn't really work for you as a home so you can save money on your loan is not the right step as selling this new home in a few years and buying what you really wanted or will need/want at that time and then having a likely higher interest rate will cost you more than exercising caution today and finding the right home at a still very remarkable rate and payment.
Lastly, for those of you who think buying or selling without an agent will save you money, please recognize that it's very difficult to maximize the price for your home without full marekt exposure and even more difficult to win the home you're trying to buy in a multiple offer situation without the guidance of a knowledgeable agent to help you. You are most likely to make more money, save more money and lots of frustration with the assistance of a good agent on your team.
There are many news headlines and stories about home owners "needing" to refinance their home loans. While we are at near record low levels for interest rates, before you refinance you should ask a few questions of yourself and loan officer.
First, how low is your current interest rate? If it's not at least 1/2% higher than your new rate, it's not likely as wise.
Second, how long will you continue to own your current home? The longer you will continue to own the home, the more likely this can be beneficial. Next consider what the projected savings would be relative to the cost of the refinance. With these very low rates, you may want to consider selecting a slightlyhigher interest rate available for little to no cost for the refinance vs. the lowest possible interest rate. The shorter the time you might own the home going forward, the more important this consideration might be. Opting for 3.875% interest rate for no cost to you vs. a 3.5% interest rate that costs you 2-3% of your loan balance in costs, may make more sense.
How long you've had your current loan and what the term of your new loan is will be another consideration. Whether you will be removing mortgage insurance or needing cash back from your home are also questions and considerations to make. There are many factors to evaluate and balance before you rush out and join the herd to refinance. If you'd like a recommendation for a good loan officer or to discuss your specific situation, let me know. I'd be happy to help.