Given such low rates, people are looking to refinance their mortgages to obtain a better one and pay less. Refinancing can cut a monthly mortgage bill substantially if you explore the options and take advantage of the opportunity.
At the beginning of November, mortgage rates had dropped to 3.72 percent, which is down from the same point last year, following the uncertainty driven by the presidential election. Though uncertainty continues to linger this year due to presidential appointments (and resignations) and Federal Reserve interest rates, economists predict that mortgage rates will remain low for a while, which means this is a great time to refinance.
A prime contributor to lower rates are the rising home prices all over the country. As the market continues to stabilise, residential properties are in increasingly higher demand.
The supply is shrinking, and although home ownership is rising compared to renters, there’s a cap on how many homes can be purchased at this time. As a direct result, mortgage rates have been low.
If you have any properties you could refinance, now’s the time, because we may not enjoy these low rates for long. Between September and now, real estate has seen an increase in mortgage rates by 0.5 percent, and economists predict that rates will rise further.
The increase is significant, but it’s nowhere near the levels of a few years ago when they were sitting well above 4 percent. Many economists predict the Federal Reserve will raise rates in the very near future.
“Rates increased late last week as the market responded to news of a Senate budget plan which may positively impact tax reform progress and more speculation around the future leadership of the Federal Reserve,” said Joel Kan, an economist with the Mortgage Bankers Association, as reported in the Chicago Tribune.
In short, it won’t be long before rates start to climb again, which means you should take quick action on refinancing your loan before mortgage rates approach or exceed four percent. Even a small reduction on your mortgage interest rate could save you thousands in the long run.
If you’re ready to take advantage of the lower rates today, here are some points to keep in mind.
The government has developed a few loan programs designed for investors and homeowners in need of a little extra financial support. For example, those who were unable to come up with a full 20 percent down payment and have very little residual income may qualify for a Federal Housing Administration (FHA) loan with low rates and quality terms for refinancing.
It’s great for those who have bad credit or need a little extra protection from defaulting. There are also Veteran’s Administration (VA) loans, which are specifically designed for borrowers who have served in the military and their families. A VA loan allows you to finance up to the full amount of the purchase price.
“VA home loans are a powerful tool for purchasing or refinancing home mortgages and generally offer low interest rates, easier qualification standards, less strict credit and income standards and no prepayment penalties,” explains an article from mortgage lenders On Q Financial.
Talk to your mortgage lender about government-backed refinancing loans that may potentially be available to you.
Most people have a 30-year-mortgage, and they’ll assume they should refinance for the same term. But this will only drag out the period of time you carry the debt, and increase your interest payments over time.
If you refinance, think seriously about moving to a shorter term, such as 15 or 20 years, instead. You’ll usually get a much lower interest rate on such a term, so although your monthly payments might be higher, you’ll pay far less in total interest over the long run.
In some cases, it can be advantageous to switch from a fixed-rate to an adjustable-rate mortgage (ARM). Often, the interest rates can be lower in the long run, especially toward the beginning before your rates start to adjust with the market.
This is not a decision to be undertaken without doing thorough research first. Talk with your lender about how soon your rates are likely to start to rise, and try to be aware of market conditions that might significantly raise your rates.
Also, an ARM is not the best option for people who expect to live in the home for the long haul. Over time, interest rates can shift to much higher levels, and you could overpay.
However, it’s a great alternative for homeowners who plan to live in the structure for fewer than five years. Take these ideas into consideration when you talk to your mortgage lender about refinancing your loan.