Are you looking at the historic low rates in your rear view mirror? You’re not alone. The lowest rates we’ve seen occurred nearly four-and-a-half years ago back in November 2012 while rates are indeed higher now they’ve held in a relatively tight range. Yes, they’re up, but now way, way up. However, if you’ve been waiting for rates to come back down so you can finally refinance your existing mortgage you might very well be out of luck on that one. Fed Chair Yellen and the FOMC raised the Federal Funds rate back in December of 2016 matching the 0.25% rate bump in December the previous year. Not only that, but Fed Chair Yellen recently commented we could expect three more rate increases in 2017. Now that rates are up and appear to be heading higher, what should you do?
That really depends upon your motivation. Most people refinance because rates are lower than the one they currently have. If for example you have a 30 year rate at 4.75% and want to refinance to another 30 year loan, you also have to consider how long you’ve held your current mortgage. If in fact you’ve held your mortgage for say five or 10 years and you want to refinance into another 30 year loan that might not make much sense extending your loan for another 360 months. However, there may be an option with a shorter term where refinancing still makes sense for you.
Longer loan terms have slightly higher rates than say a 15 or 20 year mortgage yet the amount of interest paid over the long term is much greater than a shorter term loan. For instance, a rate on a 15 year loan might be 4.00% while the rate on a 30 year fixed is 4.75% yet you’ve had your loan for quite some time. In this situation, refinancing into another 30 year loan doesn’t make much sense for you due to the amount of long term interest you’d pay. But if you refinance your existing loan into a term similar to the remaining term you have now, you might be a candidate for a refinance even though rates have gone up. If you have a 30 year loan and you have 20 years left explore a new 20 year mortgage. If you have 25 years left look at a new 25 year rate.
Of course, if you have an adjustable rate loan and you intend to keep the property for the long haul you should seriously think about refinancing out of that loan now in light of three more expected rate increases in 2017. Adjustable rates loans are more reactive to what the Fed does or doesn’t do while fixed rates anticipate Fed action. Further, if you have a first and a second either as a purchase money second, equity loan or HELOC, you might look into combining all your mortgages into one.
Your mortgage loan officer can provide your options and in fact because rates have moved up it may no longer make sense to refinance but don’t make that decision on your own. There is much more to refinancing a loan than just the rate.
Finally, are you waiting for rates to come back down before you buy and finance a new home? If you can qualify for the home you want now based upon current market rates it’s likely a prudent move to start the process. We don’t see rates coming back down anywhere near their historic lows.
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