Rate Update and Should You Refi?

Strong housing sector data contributed to a stock market rally this past week and pushed mortgage rates slightly higher on Friday. July Existing Home Sales rose 7% from the month prior, to the highest level since August 2007. This marked the fourth straight monthly increase. First time home buyers accounted for 30% of all transactions thanks in part to the $8,000 federal tax credit. Additionally, the National Association of Home Builders reported an improvement in home builder confidence as housing affordability remained near record levels and single-family housing starts increased for a fifth consecutive monthly. Currently, the 30 Year Fixed sits at 4.750% (4.929% APR) and the 15 Year Fixed is at 4.250% (4.557% APR). This week the Fed will auction a record $109 billion of 2, 5 and 7-Year Notes, which will be a good indicator of foreign demand for US debt. We will also have Consumer Confidence and GDP later this week.

If you have not already taken advantage of the near record-low interest rates, you most likely want to get your loan applications in to your mortgage professional very soon. Although inflation data remains somewhat tame, economic experts are growing nervous about the prospect of rates remaining at these levels for much longer. Housing sector data continues to show signs of improvement, Consumer Confidence and Unemployment numbers appear to be leveling and poised for a turnaround, and the Fed’s $300 billion Treasury purchase program is due to conclude in October. All of these factors will put upward pressure on rates.

Some homeowners are holding off on refinancing, instead subscribing to the old adage that you should only refinance your current mortgage if you can improve your interest rate by a minimum of 1%. Keep in mind this formula was derived when an average mortgage balance was around $20,000. In today’s real estate world, the average principal balance on a mortgage in CA is approximately $250,000, and improving your rate by 0.250% or 0.500% can result in saving hundreds of dollars per month.

Homeowners can also look to significantly decrease the remaining term of their mortgage by looking to a 20, 15 or 10-year fixed mortgage. Many borrowers are able to maintain the same payment while cutting years off their mortgage term and paying substantially less in interest over the life of their loan. Also, since interest is “front-loaded” on a mortgage, borrowers may also increase their mortgage interest deduction on their federal tax returns by resetting the payment schedule on their loan.

Most mortgage brokers and bankers offer free prequalification for homeowners. If you have not done so already, contact your mortgage professional today to inquire about the potential benefits of refinancing.

Central Coast Lending
(805) 771-9870