The mortgage industry is a constantly changing landscape and it’s important that you keep up to date with what’s going on. Mortgage rates have hit historical lows this year but we are starting to see an increase as we move into October. Mortgage Experts are expecting rates to continue rising. Even though mortgage rates are not as low as earlier this year, they are still very low. With this being said, if you have considered refinancing your mortgage, now would be the time to do it. It may be a smart move while these low mortgage rates last! In this article, we will be discussing the benefits of refinancing while rates are low, potential downsides, and the future expectations of mortgage rates.
Will Mortgage Rates Rise In October?
Mortgage rates already rose as of October 1st and it’s the first time we’ve seen them above 3% since June. According to a survey from Freddie Mac, 30-year rates went from 2.88% to3.01%. Will these rates keep rising? Rates have gone up and down a couple of times this year. But each time, the increases were followed by decreases. It may be different this time and higher rates may be here to stay. The Federal Reserve can affect your mortgage rates and they have declared that they will start easing off their stimulus program in November, and this can make rates go up. The Federal Reserve is going to start easing off the economic stimulus they have been giving. This will cause mortgage rates to go up.
Predictions For Late 2021
In 2021, the consensus has been that mortgage rates will be going up. But it is not clear when they will go up and by how much. Mortgage experts think that rates could go as high as 3.5% or even 4.25% by the end of this year. Some predict less of a rise, to around 3.2%. However, today’s rates are still at historic lows so if you want a great rate now, make sure you lock it in soon because rates will most likely be going up and going up soon.
Benefits Of Refinancing While Rates Are Low
Lower Monthly Payments
One of the biggest reasons why you should refinance is because it will lower your monthly mortgage payments. With lower interest rates, monthly payments will be smaller. You can either pay off your mortgage faster or just have a lower monthly payment.
You will be able to do more with your monthly payments because they are lower which means that there is more room in your budget after making mortgage payments each month. This extra cash flow could mean paying off debt faster or doing something else fun like traveling or taking a vacation! It also gives borrowers options when it comes time to pay their property taxes and insurance costs down the road as well.
Equity Cash Out
You can also use your extra cash flow to do things like pay off debt and build up equity. By having more cash on hand, you could take advantage of the equity in your home by taking out a refinance loan for any reason such as paying down high-interest credit card balances or consolidating personal debts. You may want to consider refinancing if you need some money from your house
Increase Home Appreciation
By refinancing right now while rates are low, it is likely that your property will appreciate at least one percent each year because mortgage interest rate payments shrink over time meaning less money is going towards interest paid compared to what was owed originally. If you keep making these smaller monthly mortgage payment installments throughout the years then this means that there is less interest being paid and more of your original mortgage balance is going towards the principal.
Shorter Pay Off Term
If you refinance while rates are low, you may be able to pay off in as little as 15 or 20 years instead of the 30-year term that is most common with mortgage loans. So if one thing leads to another and you move out before paying off your entire mortgage balance then refinancing again will help by keeping a lower monthly payment for a shorter period of time! This could also work in favor if something happens like getting laid off from your job which would make it difficult to make payments on such a long loan amount.
Doesn’t Affect Credit Score
If you are thinking about refinancing to get a lower interest rate, it will not affect your credit score. You can apply for the refinance loan and if approved then this will show up on your credit report as one inquiry which is considered to be good news because multiple inquiries made within a small time frame like 30 days or less could impact your FICO score negatively. So make sure that when refinancing, you allow at least 60 to 90 days between all of your mortgage applications so that no negative effects come into play.
Downsides of Refinancing
It Can Be A Long Process
Refinancing will take time so you need to be patient. You have to wait for rates to rise and then go back down again which can sometimes happen very quickly, but other times it takes a few months or even years! So if your home needs repairs that cannot wait around then refinancing might not be the right choice because of how long it could take and this is why many homeowners choose not to refinance.
It Costs Money
There are fees involved with applying too such as legal expenses, appraisal charges, and other things like title insurance depending on what state you live in. This all comes out of pocket before closing costs at the end when everything has been approved by underwriters until finally receiving a mortgage check from your refinance lender. So it can be expensive to apply for refinancing and this is why some people choose not to go through the trouble of having an appraisal done, meeting with their loan officer, or getting title insurance.
Savings May Be Minimal Depending On Your Current Rates
While refinancing right now while rates are low is a good idea, some borrowers may not see as many savings compared to previous refinance loans. This can be because the borrower already has great interest rates and that they were first-time homebuyers or purchased their homes very cheaply which means that there was less money owed on the mortgage balance in the first place.
No Guarantee That You Will Get A Refi Loan
There are no guarantees that you will get approved because each application is different and so many things come into play such as credit score which determines interest rates, property valuation if there has been any home value depreciation since purchase, and other pre-approval factors like debt ratio.
If you are looking to refinance your mortgage, now is the time. While refinancing may take a bit of patience and upfront investment, there are tremendous benefits for homeowners. It’s always a good idea to take advantage of low mortgage rates while you can, but it might not be the right choice for everyone. Analyze your current situation and try to make the best choice for you!