Weighing Your Options In A Changing Rate Environment
It’s incredible, but true: Mortgage rates, already near historic lows months ago, have continued to drop. In fact, the rate environment is such that people who bought a home just last year might benefit from already refinancing, as it’s estimated that by doing so, the average homeowner could save around $150 monthly.
According to the Mortgage Bankers Association’s most recent forecast commentary, refinance applications “increased 30 percent from the first quarter, and in the first two weeks of August, refinance applications surged another 50 percent.” These are staggering trends, and they indicate that many have gotten the message.
Many refinance to consolidate debt, which, on its face, is smart: Replacing high-interest debt with a low-interest mortgage makes good financial sense. But following this course of action is only advisable if you are convinced that you can rein in your spending habits once the refinance absolves your debt burden. If you’re trying to decide between refinancing and selling, know that the answer all depends on your credit, debt levels, and current income, so it’s vital to weigh your options carefully before committing to a deal that looks too good to be true. Remember: It takes years to recoup the 3% to 6% of principal that refinancing costs, so it doesn’t make sense to do it unless you plan to stay in your current home for more than a few years.
And while it’s true that refinancing allows you to shorten the life of your loan and negotiate a lower interest rate – which can, in turn, reduce your monthly mortgage payment – selling could make more sense financially, if your home’s gone up in value since you bought it.
Buying a new home to take advantage of a market in which prices are low, or to lock in low interest rates, can be a significant financial risk, because there’s no way to be sure that interest rates and home values won’t continue to fall. However, homeowners who see the value of their house rise may be able to realize the greatest profits by selling and buying a new home in an area where the market is less inflated.
No matter what happens in this less-than-ideal market for buyers, the decision to purchase a home is a personal one. To prepare for changes in market conditions, first be sure that your finances are in order – start aggressively saving for a down payment sooner rather than later, keep a close eye on your credit (or work to improve it by paying down your debt), and carefully consider your budget when shopping for a property.
Make sure to take advantage of all the available options for finding homes on the market, including using your real estate agent, searching for listings online, and driving around neighborhoods that interest you in search of for-sale signs. The more you educate yourself about the process beforehand, the less stressful it will be, and the more likely you will be to get the house you want for a price you can afford.
Please consider meeting with a mortgage lender at one of our 20 office locations, to more fully explore what’s best for your individual situation.