Will mortgage rates fall again after this week’s Fed meeting?
Editor’s note: This article was originally published on June 10, 2020, and updated on July 28, 2020, with the latest Fed forecasts Don’t wait on the Fed for lower mortgage […]
Editor’s note: This article was originally published on June 10, 2020, and updated on July 28, 2020, with the latest Fed forecasts Don’t wait on the Fed for lower mortgage […]
It was easy to get lulled into complacency by the second half of 2020 when it came to mortgage rates. Even as other indicators said rates should be rising, they continued on a calm journey to multiple record lows. 2021 has been very different so far! Covid and its impacts on the economy remain the driving forces behind market trends. That’s generally been great for rates, but it also means that rates should gradually rise as we battle back against covid. If the onset of the pandemic pushed rates to all-time lows, it’s only fair that progress against the pandemic would result in rates moving up from all-time lows. If you ask 10yr Treasury yields, that’s been the case for quite a while. And while the stock market has been singing a similar tune, the mortgage market has been in its own glorious
Posted To: MND NewsWire
Freddie Mac’s first quarter 2021 economic forecast is unusually short, and, unlike recent forecasts from either of the GSEs, has relatively few revisions. The company’s economists say that nearly a year after the first cases of COVID-19 were diagnosed in the U.S., economic growth remains uncertain, with answers largely hinging on the roll-out of the new vaccines. The labor market remains weak with close to 20 million collecting unemployment insurance. December’s job losses, the first since last April, didn’t change the unemployment rate from 6.7 percent because labor participation also declined. Record low mortgage rates continued to carry the housing market during the turmoil of the pandemic. At the end of the first week of 2021, the 30-year rate hit 2.65 percent, a new low. Freddie Mac expects…(read more)
Real estate giant Zillow said in a report last week that it believes housing demand will remain strong for years to come as buyers try to make up for lost time caused by the impact of the Great Recession last decade. In its most recent analysis, Zillow said that low rates of household formation since […]
The post Zillow forecasts strong housing demand for years to come appeared first on RealtyBizNews: Real Estate News.
Today’s mortgage and refinance rates Average mortgage rates had a good week last week with another small fall on Friday. They’re now 10 or 11 basis points (a basis point […]
People choose where to live based on many factors – availability of jobs, location of family, and the weather all come into play for most folks. Something some Americans may not remember to take into consideration, though, is the livability … Continue reading →
The post Most Livable Cities in the U.S. – 2020 Edition appeared first on SmartAsset Blog.
Queue the panic. Mortgage rates have officially spiked and the media is all over it. Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Macâs weekly survey. Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure [&hellip
The post Donât Freak Out About the Recent Mortgage Rate âSpikeâ first appeared on The Truth About Mortgage.
Jason says:
Hi, Money Girl. I’m interested in refinancing and getting a lower interest rate on my mortgage; however, I may need to sell my home and relocate in a year or so. In that case, does a refinance still make sense? If so, what factors should I consider?
Jason, thanks for your question! It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
If you’re a homeowner, your mortgage payment is probably your largest monthly expense, so it’s wise to stay alert for opportunities to reduce it by refinancing. Plus, your financial circumstances and needs today may be very different than they were when you originally got your mortgage.
It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
I'll answer Jason’s question by reviewing what a mortgage refinance is, explaining common reasons to consider doing one, and covering five ways to know if it’s a good idea for your situation.
Refinancing is when you apply for a new loan to pay off an existing loan balance. The new loan could be with your same institution or with a different lender. The idea is to swap out a higher-interest loan for a lower-interest one, which decreases the amount of interest you have to pay and may also reduce your monthly payments.
When you take out a mortgage to buy a home, various factors determine the interest rate you get offered. While your credit, down payment, and income history are critical, lenders base mortgages on the prevailing interest rates.
An interest rate is simply the cost of money for borrowers. Rates in the U.S. fluctuate according to the monetary policy of the Federal Reserve or Fed, which is our central bank.
A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
When interest rates are low, it’s like money’s on sale, as strange as that sounds! Banks should display a big banner on their front door or website that reads “bargain basement prices on dollars” or “we sell money cheap” because that’s what happens when interest rates go down. Low rates are great for borrowers, but not so good for lenders.
The Freddie Mac website shows historical data for interest rates on 30-year mortgages since 1971. In August 2020, the average for a fixed-rate, 30-year mortgage was 2.94%. A year earlier, the same loan was 3.62%, and ten years before, it was 4.43%.
Since interest rates change periodically, the rate you’re currently paying on a mortgage may be significantly different than the going rate. A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
You need at least one percentage point between the going rate and yours because there’s a cost to do a refinance. Closing a loan means you must pay fees to various companies, including your lender or mortgage broker, property appraiser, closing agent or attorney, and surveyor. Plus, there are fees required by the local government for recording the mortgage, and maybe more costs, depending on where you live.
The total upfront cost of a refinance depends on the lender and property location. It could be as high as 3% to 6% of your outstanding loan balance. The trick to knowing if it’s worth it is to figure out when you’d break even on those costs. In other words, when do you go from the red to black on the deal?
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money. But if you do keep the property beyond the financial break-even point (BEP), you’ll feel like a genius because you saved money in the long run!
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money.
You may be able to roll closing costs for a refinance into the new loan, which means you would have nothing or little to pay out-of-pocket. But adding them increases the amount you borrow and may also increase the interest rate you pay for the life of the loan. For that reason, it’s essential to ask the lender for a side-by-side comparison of all the terms for each loan option so you can carefully evaluate them.
So, how do you figure the BEP to know if doing a refinance is wise? Here’s a simple BEP formula: Refinance break-even point = Total closing costs / Monthly savings.
For instance, if your closing costs are $5,000 and you save $150 a month on your mortgage payment by refinancing, it would take 34 months or almost three years to recoup the cost. The calculation is $5,000 total costs / $150 savings per month = 33.3 months to break even.
For help crunching your numbers, check out the Refinance Breakeven Calculator at dinkytown.com.
Since how long you own your home after a refinance is critical for making it worthwhile, I’m glad that Jason brought it up in his question. For instance, if he finds out that he’d need to own his home for five years to break-even, but he only plans on staying in it for two years, that should be a deal-breaker.
If you believe that doing a refinance could be wise, you’ll also need to consider if you qualify. Lenders have different underwriting requirements, but most require you to have a minimum amount of equity in your property.
Equity is the difference between your home’s market value today and what you owe on it. A critical ratio for refinancing is known as the loan-to-value or LTV.
For example, if your home value is $300,000 and you have a $150,000 mortgage outstanding, you have $150,000 in equity, an LTV ratio of 50%. But if you owed $250,000, that would be an LTV of 83%.
You typically need an LTV less than 80% to qualify for a mortgage refinance.
You typically need an LTV less than 80% to qualify for a mortgage refinance. So, Jason should do some quick math to make sure he doesn’t owe more for his home than this threshold based on the current market value. Lenders may still work with you if you have a high LTV and good credit, but they may charge a higher interest rate.
If you have an existing FHA or VA mortgage, you may qualify for a “streamlined” refinance program that requires less paperwork and less equity than a conventional refinance. Check out the FHA Refinance program and the VA Refinance program to learn more.
There are a variety of reasons why it may make sense for you to refinance a mortgage. Here are some situations when doing a refinance may be a good solution.
Example: If you have a 30-year, fixed-rate mortgage at 5%, you could refinance with a 30-year mortgage at 3%. That would reduce your monthly payments and the amount of interest you pay over the life of the loan.
Example: Let’s say your home’s market value is $200,000, and your mortgage balance is $100,000. If you need $25,000 to pay for college or renovate your home, you could do a cash-out refinance for $125,000. After paying off the original mortgage of $100,000, you’d have $25,000 left over to spend any way you like.
Example: You might do a cash-in refinance if having a lower LTV qualifies you for a lower mortgage rate or allows you to get rid of private mortgage insurance (PMI) payments. Read or listen to How to Avoid PMI on Your Home Loan for more information.
You may also need to refinance a mortgage if you want to remove a co-borrower, such as an ex-spouse, from your loan. But if one spouse doesn’t have sufficient income and credit to qualify for a refinance on his or her own, your best option may be to sell the property instead of refinancing the mortgage.
Here are five ways to know if doing a rate-and-term refinance is a good idea.
Buying a home with an adjustable-rate mortgage comes with lots of advantages like a lower rate, a lower monthly payment, and being able to qualify for a larger loan compared to a fixed-rate mortgage. With an ARM, when interest rates go down, your monthly payments get smaller.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan.
But when ARM rates go up, you can feel panicked as your mortgage payment increases month after month. There are caps on annual increases, but your rate could double within just a few years if rates have a significant spike.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan. That move would lock in a reasonable rate that will never change and make it easier to manage money and stick to a spending plan.
If you bought a home when mortgage rates were higher than they are now, you’re in a great position to consider refinancing. As I mentioned, you need to do your homework to understand the cost and BEP fully.
I recommend shopping for a refinance with the lender who holds your current mortgage, plus one or two different companies. Let your mortgage company know that you’re shopping for the best offer. They may be willing to waive specific fees if some of the necessary work, such as a title search, survey, or appraisal, is still current for your home.
Once you know what a refinance will cost, make sure you’ll own your home long enough to pass the BEP, or you’ll end up losing money. For most homeowners, it typically takes owning your home for at least three years after a refinance to make it worthwhile.
As I mentioned, you typically need at least 20% equity to qualify for a refinance. If you have less, you may still find lenders that will work with you. However, unless your credit is excellent, you’ll typically pay a higher interest rate when you have low equity.
Also, if you don’t have 20% equity, lenders charge PMI. Adding that to your new loan could cut your savings and give you a much longer break-even point.
The higher your income and credit, and the lower your debt, the better your refinancing terms will be. If you’re unemployed or your credit took a dive due to a hardship, wait until your overall financial situation has improved before making a mortgage application. Good credit can save thousands in mortgage interest.
Good credit can save thousands in mortgage interest.
If you investigate doing a refinance and decide that it’s not worth the cost, another strategy to save money is to ask your lender for a mortgage modification on your existing loan. You may be able to negotiate modified terms, such as a lower interest rate, without having to pay for a full-blown refinance.
If you’re unsure how much home equity you have or know that you have very little, don’t let that stop you from inquiring about your refinancing options and saving money. Getting advice and refinancing quotes from your lender is free and will help you understand your range of financial options.
Show Summary I’m excited about today’s show! My buddy, Travis Oglesby is joining us and we are going to talk about creative deals. Travis and his partners joined our coaching program…