Mortgage Rates Remain at Historic Lows

The latest report from Freddie Mac shows that the 30-year fixed-rate mortgage averaged 3.61% last week, slightly down from the week before (3.66%), and nearly 20 points lower than a year ago (3.80%).

This is great news for homebuyers who are dealing with rising prices due to a low inventory of homes for sale in many areas of the country. Freddie Mac expressed their optimism for the rates to remain low throughout the spring in a recent blog post:

“We expect mortgage interest rates to stay well under 4% as we head into the heart of the spring homebuying season. We’re predicting it to be the best one in 10 years, which should provide even greater opportunities for first-time homebuyers.”

Below is a chart of the weekly average rates in 2016, according to Freddie Mac.

Mortgage Rates Remain at Historic Lows | Simplifying The Market

Rates have again fallen to historic lows yet many experts still expect them to increase in 2016. One thing we know for sure is that, according to Freddie Mac, current rates are the best they have been since last April.

Sean Becketti, Chief Economist for Freddie Mac recently explained:

“Since the start of February, mortgage rates have varied within a narrow range providing an extended period for house hunters to take advantage of historically low rates.”

Bottom Line

If you are thinking of buying your first home or moving up to your ultimate dream home, now is a great time to get a sensational rate on your mortgage.

How Does Refinancing Work?

A refinanced mortgage represents a brand new debt and must be underwritten accordingly. As with a home purchase, there are three basic areas where a borrower is evaluated:

  1. Credit Score
  2. Income and Employment History
  3. Appraisal (loan to value)

Types of Mortgage Refinance

Mortgage refinances come in three varieties — rate-and-term, cash-out, and cash-in. The refinance type that’s best for you will depend on your individual circumstance.

Rate-And-Term Refinance

In a rate-and-term refinance, the only terms of the new loan which differ from the original one are the mortgage rate, loan term, or both. For example, in a rate-and-term refinance, a homeowner may refinance from a 30-year fixed rate mortgage into a 15-year fixed rate mortgage; or, may refinance from a 30-year fixed rate mortgage at 5 percent mortgage rate to a new, 30-year fixed rate mortgage at 4 percent. With a rate-and-term refinance, a refinancing homeowner may not walk away from closing with more than $2,000 in cash.

Cash-Out Refinance

In a cash-out refinance, the new mortgage may also have a lower mortgage rate or shorter term as compared to the original home loan. However, the defining characteristic of a cash-out mortgage is that the loan amount of the new mortgage is increased to account for cash back at closing of more than $2,000 (or a second lien is paid off and consolidated into the new first mortgage). The money can be used for debt consolidation, home improvement, college education etc.

Cash-out mortgages represent more risk than a rate-and-term refinance and, therefore, carry more strict underwriting guidelines. Cash-out refinances will have limitations on loan to value and often require higher credit scores.

Cash-In Refinance

With a cash-in refinance, a refinancing homeowner brings cash to closing in order to pay down the loan balance. The refinanced mortgage may also have a lower mortgage rate, or a shorter loan term, or both. There are several reasons why homeowners opt to do a cash-in mortgage, but the most common reason is to get access to lower mortgage rates which are only available at lower loan-to-values. Cash may also be used to buy the loan down to the conventional loan limit (from a more expensive Jumbo loan), or to remove private mortgage insurance (PMI).

Missed the Refinance Boat?

If you missed the 30 year fixed rates in the 3’s, you may want to consider a 10/1 Arm or a 15 year fixed mortgage refinance. The current 10/1 Arm and 15 year fixed rates are both still in the high 3’s, and would allow for tremendous interest savings vs. the current 30 year fixed rates.

I like the 10/1 Arm (with a 30 year amortization) as, historically, most folks are only in their loan (not their home) for 5-7 years. The 10/1 Arm gives you 10 years at a guaranteed fixed rate before it switches to a 1 year adjustable.

The interest savings on a $250,000 loan over 10 years would be aprox. $18,000 (3.75% APR vs. 4.75% APR). Even if you were in the home for 12 years, and the rate on the 1 year Arm went to it’s highest adjustment, you would still save money. Also, the 10/1 Arm is good for both conventional and jumbo loans up to $750,000!