Weekly Rate & Market Update 7-1-16
It’s that time of year, our 6TH Annual Flag Collection and Retirement will take place TONIGHT!!
Question of the week: With rates so low we should we take out some cash with a new mortgage now for use later?
Answer: This has been a popular question lately and as with many Questions of the Week there are multiple answers depending on your situation. As well the question is best answered using more follow up questions.
When will you need the money? Is there a definite timing for using the money? One client is considering accessing equity today for future college costs, which will start in 2-3 years. Another is planning on extensive remodel for their home beginning at the end of the summer. Yet another is looking for JIC money—Just In Case—and may never need the money to cover a potential emergency or major expense such as a new roof or plumbing work.
What is your current mortgage? Is the rate on your current mortgage as low or lower than the current rate you can obtain with a cash-out refinance? Will taking the cash-out push your mortgage balance over one of the tiers that increase rates/pricing (either $417,000 or $625,500)? Do you have a primary mortgage and a second or equity line?
What is your home’s value? After the refinance and increasing your loan balance what will your loan-to-value be? The primary factors in the rate/price of your refinance are what will the loan-to-value be, what is the loan balance, if the loan is just reducing the rate or cash-out, and your credit score.
If someone has a delayed need for the funds from a cash-out refinance my typical advice for them is to wait until they have more immediate use for the funds, see what long term mortgage rates are at that time and if it makes sense to do a cash-out refinance at that time otherwise an equity line of credit (HELOC) may be a better solution for them. Depending on your current rate, refinance now to lower your primary mortgage payment and save money until that time comes. If you pull funds out now that you will probably not use in two or more years, or ever, then consider the additional interest costs during that period for funds you have sitting in the bank. Funds you may be tempted to use for other purposes in the meantime.
Over the past few years we have funded many refinances for families consolidating and outstanding HELOC and their mortgage into a new loan that lowers their total payment and fixes the rate on their HELOC. Some people are uncomfortable not knowing what their borrowing costs may be in the future and since rates are so low would rather take advantage of historic low rates to obtain the funds they will need at a future date, pay the interest on the unused money to avoid future rate risk. The math may show they end up paying more for the funds in the long run even with higher interest rates in the future, but that is what they are comfortable doing.
Everyone’s situation is slightly different, and everyone has their own comfort level with current stability versus future risk. Depending on your situation, when and for what you need the additional funds and your comfort level for future rate risk a cash-out refinance today may be a good move, otherwise perhaps just lower your rate and payment today and tackle the cash-out issue in the future when the funds are needed.
Give me a call to assess your situation and needs and find the program that matches best for you.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
It’s not all Brexit…Some important economic data for the United States was released this week. Early in the week the third and final revision to 1st Quarter Gross Domestic Product was released and the growth figure was revised slightly upward to 1.1% growth. The upward revision was mostly due to export data being updated, of concern was a downward revision to personal consumption. Also revised downward was the price index showing just 0.4% growth. Overall the news supports low interest rates.
Consumer confidence spiked in May to its highest level since last October. While confidence was running high in May plans to buy really big ticket items, cars and homes, declined in the report. Overall the report is slightly negative for interest rates.
Converse to the confidence shown by consumers in May was their income and spending. Personal income growth slowed in May, growing just 0.2% and spending grew 0.4%. Neither number supports robust economic growth. Nor does 0.9% increase in prices year over year. This data combined with the GDP data support rates remaining low for an extended period.
Rates for Friday July 1, 2016: As expected markets have settled down following the Brexit vote last week—the Dow and the S&P indexes are ticks below where they were at close last Thursday. Bond markets continued to see rising prices, but as with the sudden spike last week, while softening rates not a lot of movement down as lenders are reluctant to lower their rates much further. But a tick lower rates are this Friday to their lowest since May 2013.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Down 0.125%
30 year high-balance conforming 3.125% Down 0.125%
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** Flat
PLEASE NOTE THAT THESE ARE BASE RATES AND ADJUSTMENTS MAY BE ADDED FOR CONDOMINIUMS, REFINANCES, CREDIT SCORES, LOAN TO VALUE, NO IMPOUND ACCOUNT AND PERIOD RATE IS LOCKED. RATES ARE BASED ON 20% DOWN (3.5% FOR FHA) WITH 740 FICO SCORE FOR PURCHASE MORTGAGES. ***FHA RATES HAVE MAY HAVE NO POINTS AND CREDIT TOWARDS CLOSING COSTS, CHANGES DAILY.
As I do the Friday before almost every Independence Day here is a link to the Declaration of Independence that I encourage everyone to read once a year. An amazing document as it put forth ideals never before written by and committed to by leaders of any nation.
May your pursuit of happiness this weekend be met with fulfillment many times over this weekend.
Have a great week,
Dennis
