You would have to have spent the last few years asleep with bears not to know that interest rates are close to 35 year lows. They fluctuated between 3.5 and 4 percent over the past year. Despite these low numbers, there hasn’t been a big increase in home purchases and refinancing across America. Why?
After the United Kingdom voted to leave the European Union earlier this year, a market frenzy followed. It caused mortgage rates to drop. After Donald Trump’s election, rates on the 10-year Treasury moved from 1.79% to 2.6%. Mortgage rates are based on the 10-year. Investors were betting that Trump would revive the economy and higher growth would bring higher interest rates. Also, the Fed said they would raise rates three more times in 2017. There are some solid reasons as to why you’d be smart to act now instead of waiting.
Few homeowners are refinancing or potential homebuyers taking the plunge. AmCap Mortgage was curious to know why. They found that many consumers were reluctant to apply over concerns that they may not be getting the best possible deal. They hoped rates weren’t going higher and preferred to see if they would drop back down.
Although that does make a bit of sense, the strategy itself is flawed. The only way a consumer will ever know that rates have dropped to their lowest point is when rates are back on the rise.
Historically today’s interest rates are the lowest they’ve been in the past three years, and prior to that, interest rates were the lowest ever. To give you some perspective as to how low rates are in today’s market, many of the consumers currently refinancing are the same ones who refinanced a year ago.
Interest rates are simply too low to pass up, and the monthly savings far outweigh the costs associated with refinancing.
The key thing to consumers. when refinancing, is the break-even point. There are fees associated with every home loan transaction; lender fees, title fees, escrows, etc. The break-even point occurs when the cumulative monthly savings resulting from the refinance equals the actual cost of the refinance.
Let’s say you were to refinance and your new monthly payment yields a savings of $100. And let’s say the total cost of the refinance comes to $1,500. The break-even point would occur after 15 months, meaning you’d be free of your refinancing fees and reaping the benefits of a lower payment starting in the 16th month.
So why the break-even point is so important? It helps determine whether refinancing to a lower rate is your best option. For example, if you’re considering selling your home in the next two years and your break-even point won’t occur until year three, you may want to hold off on refinancing, as the cost of the refinance would likely not be recouped prior to the sale.
As investors, we are in business to make a modest profit on any deal, however we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Just the simple honest truth about your home and how we can help you sell it fast to resolve any situation.
Give us a call today at 260-202-2222 to let us know what YOU need help with!