Weekly Rate & Market Update 7-8-16
Question of the week: Should we refinance?
Answer: A semi-follow up to the Question of the Week from last Friday (if now is a good time to pull cash out from home for use later), and our most popular question for the last several weeks. And those who are regular readers of the Weekly Rate & Market Update know the one word answer, read, all together now: Depends.
When this question is raised I naturally have several questions I need answered before I can provide an answer. What is your current balance? Rate? Payment? Then we try to determine an approximate value of the property to determine what our loan to value will be if we do refinance.
Then there is some math that is done so we can determine first if you can refinance then if you should.
What do you mean if you “can?”? If the rate is lower I should, shouldn’t I?
Earlier in this century it was not uncommon for some (many?) loan originators and lenders to “churn” clients with refinances with every tick down in rate without concern as to how much clients were saving nor total costs. Since then guidelines have been put in place to prevent such practices. The guidelines are pretty simple, if you are going from a like to a like loan, i.e. 30 year fixed to 30 year fixed, with a rate and term refinance (not pulling out any cash) then your payment must be reduced by at least 4% and the time frame to recoup the costs of the refinance with your savings must be 48 months or less (I try to use a stricter standard of 5% savings and 24 months or less).
Because of these guidelines and how low rates have been a lot of homeowners are discovering that guidelines will not allow them to lower their rate from 3.875% to 3.75%, or in some cases even 3.625%, because their rate and payment is already so low that shaving an eighth or a quarter off their rate will not save them very much on a monthly payment—in that case instead of being upset that you cannot take advantage of the lower rate be happy your rate has been so low as long as you have had it!
For others adding the additional term to their loan for the savings ends up costing them more in the long run and is also not worth the refinance. Take David, a past client who has a 15 year mortgage with 12 years left. We worked out the numbers and while he would save money over the next 12 years with a refinance the additional three years on the new mortgage would wipe out the savings and more. Since he wants the home paid off when he retires adding the additional cost made no sense.
Next week: does it make sense to pull money out of my home to pay off other debt?
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.
Interesting juxtaposition of economic news this week. Working backwards, the U.S. economy had a surge in job growth from May’s anemic 11,000 hires (revised down from initial report of 38,000 gained) adding 287,000 jobs. That is well above estimates and gains were made across many industries—including manufacturing for a change. Some tempering in the news as hourly earnings gained only 0.1% and are up just 2.6% year over year, but many more people are earning that hourly wage which is good news. The question on everyone’s mind is was last month’s job report or this month’s job report an anomaly? I think perhaps neither. The employment data today should be bad for rates especially since…
…the minutes from the Fed’s meeting were released on Wednesday. The minutes showed that the May job report was the primary cause for the voters on the rate committee to not raise the Federal Reserve’s discount rate. So if the May report was the reason not to raise does the June employment data support an increase at their next meeting?
Rates for Friday July 8, 2016: The short holiday week has seen a slightly wave in mortgage rates and pricing through the week. The conforming rate is the same as last week while lenders have edged up the high-balance rate from last week’s low. Market is in what we call a “caution” zone, meaning floating is a bit risky as a slight move to lower prices for mortgage bonds (higher interest rates) could trigger a pop up in rates. If you are able to lock through your escrow period I advise you do so, the slight gain you may get from lower rate/price is less than loss you will experience if/when rates turn.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.5% Up 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.
Thank you to everyone who turned out for our Annual Flag Collection and Retirement Ceremony last week, it is always good to see old friends!
Have a great week,
Dennis
