Refinance Rush Triggered by Lower Rates
Home owners are rushing to refinance as the last hope of lower rates looks to have passed, again.
- 2018 Interest Rate Trends
- Refinance Window of Opportunity
- Proactive Refinance Reasons
- Reactive Refinance Reasons
- How Higher Rates can Impact Home Value
- Mortgage Financial Planning
2018 Interest Rate Trends
The above graphic tells the story of the not so slow slide toward the highest interest rates that we’ve seen in many years.
Every red bar you see above represents interest rates rising. You might also see a pattern of a large green bar immediately following a large red bar.
The timing of locking in the lowest interest rate is a game that almost nobody can win. Every single day you see rates going up or down.
If you look closely you will find very few days where there is no bar, meaning that interest rates essentially didn’t move up or down that day.
Overall, interest rates are clearly trending up. There are many more long red bars on this graph than there are green. The result is that mortgage rates are still trending strongly toward higher rates in 2018.
Refinance Window of Opportunity
Prior to Memorial day 2018, we strung together the longest trend of improving rates that we’ve seen since March 2017.
Last week, rates crept back up slightly. Even after the reversal, we’ve back into that sideways channel where rates moved very little from February to April of this year.
If you’ve been waiting for interest rates to go back down to refinance, last week was probably your one, and only opportunity to snag a low rate before the train leaves the station again.
Still waiting for rates to drop? I wouldn’t, unless you have to.
Proactive Refinance Reasons
A proactive refinance is when you’re trying solve a long term problem. Examples of a proactive refinance might include:
- Fixing an interest rate that will adjust in the future
- Consolidating a HELOC into tax deductible interest
- Paying off high interest debt
- Taking cash out for much needed home improvements
- Paying off student loans, or paying for college for kids
- Reduce term / Pay off mortgage sooner
A proactive refinance is not an emergency, and does not require that you refinance reactively (more about that below).
Most proactive refinance home owners are waiting for the right timing. If the timing you are waiting for is for rates to go back down to 2015 levels, you’re likely to wind up having to do a reactive refinance to stop the bleeding.
Another example of a proactive refinance is when interest rates drop significantly. Savvy home owners that have a mortgage finance professional in your corner can quickly and easily take advantage.
Reactive Refinance Reasons
A reactive refinance occurs when an emergency comes up that requires you to access equity in your home in order resolve an otherwise very difficult situation.
Example of reactive refinance reason include:
- Death or loss of employment of primary wage earner
- Medical emergencies
- Financial support of family
- Adjustable rate mortgage that spins out of control
Rarely can you avoid a reactive refinance reason, except in the case of having an adjustable rate mortgage. As the economy continues to be on fire, every time the Federal Reserve votes to increase rates, it’s adjustable rates that are directly affected.
How Higher Rates Can Impact Home Value
One of the consequences of higher interest rates is the impact on home values. At some point, in a normal real estate market, rates are going start putting downward pressure on home values.
Increasing interest rates directly impact what home buyers can afford. When a lack of affordability squeezes buyers out of the market, sellers are going to have to lower prices to compete for the fewer buyers in the market.
Higher interest rates almost surely guarantee that you are going to be forced to take a higher interest rate than you have now.
Dropping home values means that your appraisal will come in lower. A low appraisal may result in a limit to the cash out you can take. A low appraisal can also mean even higher interest rates and closing costs due to a higher loan to value.
Mortgage Financial Planning
Your home is probably your greatest asset, and may represent your largest savings account, as well as your retirement account.
There is a lot riding on the smart management of your home’s equity. Maximizing your equity means taking advantage of strategic refinancing opportunities when it makes sense.
Even in a rising interest rate environment like we’re seeing today, refinancing to reduce the term of your loan could save you thousands of dollars.
15 and 20 year mortgage terms will have lower rates than a 30 year fixed rate mortgage. In some cases, a 15 year term today may be the same, or even a higher than you have on your 30 year fixed now.
Mortgage financial planning requires that you have a relationship with a mortgage professional that specializes in long term mortgage management.
Consult a Professional
I’ve mentioned it many times, and I cannot stress enough the importance of consulting a professional loan officer when refinancing your home.
The lenders that you see advertising on TV, radio, and the internet, are primarily services that sell your information to telemarketing companies. These companies spend a lot of money to get you to pick up the phone or fill out a form.
These “big box” lenders can offer you a mortgage the same way that McDonald’s can offer you a hamburger.
You can eat a McDonald’s hamburger and be full, but is it really the best decision for your long term health? Probably not.
Professional loan officers are more likely to help you understand the risks and rewards of any financial decision you make regarding your home loan.
Professional loan officers solve home loan financing issues for a living, and look at homeownership as a long term path to building wealth for you and your family.
Free Home Loan Analysis
Find My Way Home is a network of mortgage professionals that are passionate about putting clients before commissions.
If you are considering any of the above refinancing options, we are here to help answer your questions, and can even introduce you to a professional that can help, if you would like.
It doesn’t cost more to use a professional loan officer, and not using one could put you at risk of not having all the facts when making a decision about the best way to reach your refinancing goals.
Getting your questions answered is easy. You can either ask a question here, or below in the comments section of this article.
If you would like to have your home loan reviewed by a professional loan officer, you can also click the “Get Started” button below to get matched with someone that can help.