Did You Hear About It?
If you’ve been sleeping under a rock, you have heave missed the government stepping in to back Fannie Mae and Freddie Mac over the weekend. BIG-BIG news. As many speculators were saying the mortgage market was about to kick the bucket, the government stepped in. Here’s the interesting part – once the government stepped in and guaranteed the two entities, all of their mortgage debt is now guaranteed by the US government. Once this happened, speculators got OFF the sidelines and pumped as much cash into the mortgage market as they possibly could on Monday morning.
How Low Did They Go?
On Monday, mortgage rates moved as low as 5.375% (around noon) on a 30 year fixed rate. Yea, that’s about 1% lower than they were on Friday! That’s some serious movement. The good news is, you haven’t missed the bus yet. With the recent restoring of confidence in the market, you’ve got an opportunity to lock in a stellar rate. We’re still below 6% on a 30 year fixed.
What Rate Can You Get?
I wish I could tell you. Mortgage rates often trade within a range. In the past week, that rate could (on Monday) be a range of .75%! More importantly, there are 27 different factors that go into a custom rate quote. So, my suggestion is connect with a lender that can help explain what all goes into a custom rate quote and see where yours ends up. It’s a good time to at least get on someone’s radar (the mortgage professional should alert you when it makes sense to refinance or purchase).
Why Refinance?
I’m going to quickly place a disclaimer here – I’m a firm believer that it’s not always a good time to refinance. Period. If you’ve ever talked with a mortgage professional that doesn’t know the word ‘no’, you should run – not walk – RUN – to a professional that does. It’s important.
With that said, there are numerous reasons a refinance is worth considering – If you have a question or need some advice, feel free to contact me.
- To improve your interest rate. If you’re paying over 6% on a 30 year fixed, it’s worth checking out. No guarantees that this is the reason you’d initiate a refinance – but it’s a good reason to start.
- To get a fixed rate mortgage. There were many savvy Iowans (or sometimes misled) that currently have adjustable rate mortgages. Now is a great time to consider getting a fixed rate mortgage. Eventually, the Fed will have to tighten and raise the prime rate (I could talk on this for hours.. but I won’t). If/when that happens, your ARM will adjust upward and fixed rates will also move higher. Lock in before that happens!
- To consolidate mortgage debt. Many Iowans have both a 1st mortgage and a 2nd mortgage. Often times, 2nd mortgages are at a higher rate and they could definitely bring down their overall cost of money. The other thing some homeowners have to worry about is crazy terms like a ‘balloon’ (meaning the mortgage is due sooner than the term of the mortgage) or HELOC (adjustable to prime rate… sexy now, but not later), etc.
- To consolidate other debt. Lets face it – credit cards and random installment loans haunt some people. By consolidating it, you might be able to improve your cash flow each month and also (potentially) make some of that interest tax deductible. If I work with someone that does this, we often talk about budgeting and figuring out where you’ll put your extra cash to put it to good use!
- To improve your home. Considering making home improvements? Buying some furniture for that totally vacant bedroom. Building the deck you’ve wanted to put on the house. You get the idea. Here’s my #1 piece of advice on this option – connect with a Realtor to determine the return on your investment. Some improvements just DON’T payoff. I’d be happy to connect you with one if you’d like.
- To offer extremely unique financing offers in the future. Get ready for something you’ve never considered. Refinance into a low-rate FHA loan and not only will you likely save some money – but you’ll also be able to use this rate in the future. Let me explain (it’s tough to in a short period, but I’ll give it a shot) – FHA loans are assumable. What that means is that when you go to sell your home in 5 years, you’ll be able to offer an assumable mortgage to potential buyers. Why does that matter?… Great Question! If rates are at 8%, 10%, etc.. you’re 5.75% 30 year fixed mortgage is going to look pretty sexy to buyers! Not only is it a great rate, but it will also cost your buyer less to own each month!I think it goes without saying that your buyer has to qualify for an FHA loan to assume it. But seriously, this is a great deal. If you called me about a refinance, this is the unique information that it pays to know.
- To sell, WITHOUT SELLING! Are you hard up to sell because you need the cash? Maybe because the payments are too much to handle? Well, by refinancing, you can pull equity out of your home and do what you’d like. I’m not saying to do this to consume – so drop the idea of getting 28″s for your H2. But seriously, if you have money locked up in your house, the only way you have access is if you sell OR refinance. It’s cheap money right now, if you think you’ll need it in the next few years (before you sell) it’s a really good time to consider doing it.
Closing Advice
Hopefully this offers some explanation of what’s going on in the market right now and help you think through the reasons you might consider actually taking action. Again, it’s not for everyone – but a true mortgage professional should be able to say no. Honestly, if they do say ‘yes’, ask them why! Make them show you how long it will take to actually break even on the savings – etc.
You really need to make an educated decision in a situation like this. With rates as low as they are right now, we get emotional instead of logical – don’t do that!
Just find a pro, you’ll be in good hands. If you’re not sure who to call, I know a guy.
