January 24th, 2017 5:09 AM by Jackie A. Graves, President
Over the next
12 months, here are some things to keep in mind as you consider your financing
The mortgage industry has gone through some
changes in the last three months. If you’re looking to finance a home in 2017,
it’s important that you know what the opportunities are and how to capitalize
on them. Over the next 12 months, here are some things to keep in mind as you
consider your financing.
Interest rates have spiked and are now
sitting at over 4% on the widely popular 30-year fixed-rate mortgages. This
change occurred seemingly overnight once Donald Trump was elected president.
The markets saw this and rallied, marking a change that meant less regulation,
with more opportunity in the investment market. Subsequently, this meant that
expense bonds were driving mortgage rates higher. The market was further
affected when the Federal Reserve tightened its monetary policy in December
2016. As a result, you can now expect an interest rate on your mortgage
anywhere between 4% and 4.5%, depending on your credit score, the loan program
and your financial stability. (If you’re not sure where your credit stands, you
can view two of your free credit scores, with updates every 14 days, on
Is buying a home a still worthwhile?
Buying a home is still a solid goal for
many, and it is certainly still an attainable one. With higher interest rates,
however, affordability will become the main thing to consider, especially the
choice between being able to make a mortgage payment and continuing to save.
When you qualify for a loan, an interest rate with a half percent difference
can translate to around $75 to $80 a month, depending on the amount being
financed. While this change may not seem significant, in the long run it is
something to take in to consideration when planning to invest in a high-ticket
item. Keeping your credit score as high as possible is also important for
scoring a good interest rate and keeping your housing payment manageable. (Tips
on how to do that here.)
What about refinancing in 2017?
The option to refinance in order to lower
your interest rate might not be the best choice for the moment. Rates aren't
where they were prior to the election, so going from a 30-year mortgage to a
new 30-year mortgage and expecting a lower interest rate may not be in the
cards for a little while. Here are some refinance opportunities that are more
accessible in today’s environment:
refinancing: Refinancing with the intent to pull equity out of your home is
a byproduct of an inflationary environment. Remember, when mortgage rates rise,
it is also common for interest rates on consumer obligations such as lines of
credit, student loans, and credit cards to rise as well. Cash-out refinancing
can be a smart and prudent move to rid yourself of high payments that are
typically associated with consumer debts. For example, if you can pull out
$20,000 in a cash-out refinance and use that money to pay off your larger
outstanding debts (i.e. car loan, student loan, credit cards, furniture), your
mortgage payment may rise to $100 a month, but you’ll save $600 a month in
obligatory debt. You can then take that extra $500 and save that money or pay
down your mortgage principal.
your loan term: Long-term fixed-rate loans are expensive when you consider the
total interest paid over the life of the loan. Going from a safe 30-year
fixed-rate mortgage to a 15-year fixed-rate mortgage can save you a substantial
amount of money. Fifteen-year and 10-year fixed-rate mortgages are both
hovering in the mid-to-low 3% interest margins, marking an opportunity to pay
your mortgage off in full while also perhaps planning for retirement.
to drop mortgage insurance: This form of refinancing might mean
having to pay a slightly higher interest rate on a long-term 30-year mortgage,
but it also means dropping the private mortgage insurance that brings up your
payments several hundred dollars a month. The key is to take the money and do
something smart with your new savings.
What’s in store for mortgages this year?
Here are some things to keep in mind in
Markets: If the stock market continues to improve and rally, expect
mortgage rates to continue their upward climb.
Events: It would take something big and unexpected to cause the market
to reverse course, shifting money into bonds and driving mortgage rates lower.
If something like this does happen and you are eyeing a particular interest
rate, act quickly.
Mae and Freddie Mac: Pay attention to any news from Fannie Mae or Freddie Mac. If
rates continue to rise, current underwriting standards might be adjusted to
meet the needs of the shrinking housing market. Expect guidelines to loosen
slightly to offset the higher interest rates.
If you’re looking to purchase a house or
refinance one you already own, and there is a financial benefit to the terms
and rate you qualify for, act on it. Let affordability be the driver of your
decision to purchase or refinance a home to meet your financial goals. The
market will always change and evolve, and if you can justify the opportunity,
it should be something for you to seriously consider.
By Scott Sheldon - To view the original
article click here