It’s no secret that mortgage interest rates are very low, fluctuating 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. Why?
After the United Kingdom voted to leave the European Union earlier this year (remember Brexit?), a market frenzy followed and caused mortgage rates to drop even further. This forced analysts to adjust their predictions that interest rates would increase in 2016, so now most people are anticipating further drops. But there are some solid reasons as to why you’d be smart to act now instead of waiting.
Low rates could be gone tomorrow
With few owners refinancing or potential homebuyers taking the plunge, AmCap Mortgage was curious to see why. What they found was that many consumers were reluctant to apply over concerns that they may not be getting the best possible deal. If they wait a little longer, they figure, rates may drop.
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.
Historic lows are there for the taking
Looking at interest rates historically, today’s 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 interest 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.
There are reliable advisors to help you with the process
At AmCap, experienced loan originators can provide you with all the information you need to make an informed home loan decision: the loan programs you’re eligible for, the up-front costs, the projected monthly savings associated with refinancing, and the total projected fees for the transaction.
In a short amount of time, you could hit your break-even point
The key thing consumers should be looking for when refinancing is the break-even point: when the refinance pays for itself. There are fees associated with every home loan transaction — lender fees, title fees, escrows, etc. — but 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 is the break-even point 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.
If you’re still unsure whether acting on today’s mortgage rates is in your best interest, talk to an experienced loan originator at AmCap. And here’s a bonus: When you partner with AmCap in your loan search, they’ll donate $500 to the charity of your choice. That’s a partnership where everyone wins.