Rates for home loans have been climbing since November. After the presidential election in November, mortgage rates surged. Then with a strengthening economy, the Federal Reserve raised interest rates in December. Mortgage rates have been at or below 6% since early 2004. Can you believe rates peaked in 1981 at 18.6%! While rates that high may never be seen again, the rates that buyers have enjoyed recently are likely a thing of the past as well. Interest rates have been inching up for several months and are expected to continue climbing throughout 2017.
If you’ve been thinking about a new home or thinking of refinancing, 2017 is the time and the earlier the better as rates are still historically very low. Mortgage loan experts do predict a slow interest rate climb throughout the year.
#1 – Interest rates are climbing.
The general rule of thumb is a refinance is smart if you are paying 1% or more above the current interest rate. If this is where you are with your current mortgage loan, you may want to look at your numbers for a refinance before the interest rates climb higher. A recent article on realtor.com:
“The proof is in the numbers: In August, interest rates on 30-year mortgages tanked at 3.55%. Today, the rate is slightly above 4% and climbing; Smoke predicts we’ll reach 4.5% in 2017, and some experts predict rates could even hit 6% by 2019.”
With a lower interest rate, you bring down your monthly payment and that’s real savings.
#2 – Home values are rising: How is this good for you as a homeowner?
As values rise so does the equity in your home. If your equity in your home grows to more than 20% of your home’s market value, you may be able to drop the PMI (private mortgage insurance) that you may have needed with your original mortgage loan.
According to Investopedia, without PMI you could save real money every month. This is money that no longer goes to insurance and stays in your pocket:
“Private mortgage insurance typically costs between 0.5% to 1% of the entire loan amount on an annual basis. On a $100,000 loan this means the homeowner could be paying as much as $1,000 a year, or $83.33 per month – assuming a 1% PMI fee”
Rising home values also means when you refinance, you may have more equity in your home to take advantage of. With enough equity in your home, you may want a cash-out refinance. Many homeowners choose a cash-out refinance for a cash influx to pay for updating the house, for a condo or purchase a new car. Even as interest rates climb, the interest rate on a mortgage refinance is a lot more reasonable than the interest rate on other types of loans (plus you may get a tax advantage on a mortgage loan…see your accountant), so for the right borrower, this may make sense.
#3 – Home values are rising but at a slower pace.
Some homeowners may look at rising home values and want to wait just a little longer before refinancing. This would make sense if interest rates weren’t rising too. Nela Richardson, chief economist at real estate brokerage Redfin says,
“We believe price increases will hold steady despite slowing sales growth, because homebuyer demand is stronger now than it was at the same time last year, and because we foresee a small uptick in homes for sale.”
Housing prices are increasing and homeowners should take advantage of that.
Is Refinancing Right for You?
If you think a refinance is right for you, we will be happy to meet with you and help you decide if it’s a smart money move. Give us a call!