The Fed meeting is set for June 13 and 14 and talks of a rate hike is abound. With the positive jobs report, it looks like an increase in mortgage interest rates is inevitable. If you’ve missed a refinancing opportunity last year, hitting the go button now could be a good idea.
Low Refi Levels
With current rates still hovering within the 4 percent range, it’s surprising why not many potential refinancers aren’t taking the opportunity, even with the fact that the Home Affordable Refinance Programis in its last year. The first quarter of the year reports a faltering refi volume. So what’s causing the decline?
The scarcity in inventory and the influx of demand have significantly pushed home prices up. Many homes now have enough equity for a cash-out refi, but it’s perplexing why homeowners are holding their loans for too long.
One thing that could’ve contributed to the decrease in refinances is the surge that followed the Brexit phenomenon. Those who were eligible then have taken advantage of the historically-low rates, snagging rates as low as 3 percent. The surge continued until a couple of months ago. Those who could’ve refinanced now and taken the benefit from another angle – equity – may no longer be eligible to do so.
Another reason could be the majority’s belief that HARP is a fraudulent program. To remedy this, the government is pushing awareness programs that would adequately debunk the many misconceptions borrowers have about the program.
Among other things, belief in the notion that they will never be able to recoup their cost may also be preventing eligible refinancers. Those who use the break-even point approach to calculate if they will be able to recoup their costs forget to take into account that the refinancer may want or need to refinanceagain in the future, or that they may sell your home in the future. Much of the values required for this method are unpredictable, making it an inaccurate measure of potential savings.
But before you worry about rates, you should first worry about the borrower factors that would directly influence your rate. Remember that your rate is dependent on your credit risk. Having bad credit raises your risk and would only grant you access to high interest rates. So even if Fed rates are at historic 4-percent low, that does not guarantee you of snagging the same rate.
So what option do I have left?
Experts advise that to know if refinancing is the way to go, you should be able to save money without paying anything to do it.
Explore the no-cost refi option. As the name suggests, you get to refinance while the cost of closing is shouldered by the lender. But what’s the catch? The lender will place a higher interest on your loan. This is a red flag to many, but they fail to consider the benefit of not having to pay for closing which costs around 2 to 6 percent of the price of the home. Taken this way, it’s a win-win situation since you can always refinance in the future.
If you are a buyer who prefers to use your savings for down payment or don’t have enough to pay for the cost of closing, this option is worth looking into.
Yes, refinancing is definitely not for everyone. But given the uniqueness of the situation where rates are poised to march higher in the near future, taking the shot is a good gamble.
If you are still uncertain, consult a professionalto be properly guided with your concerns and sentiments.