The threat of a federal interest rate increase and the promise of a new president in the Oval Office beginning in 2017 can mean only one thing: something is surely going to change in the country’s monetary policy in the very near future.
If you’re a homeowner with a mortgage with an unfavorable interest rate or unideal terms, it’s worth it to weigh your options sooner rather than later. And even if you’re happy with your rate and mortgage terms, it’s not a bad idea to at least know your options.
Because once the fed does raise rates, those enticingly low interest rates in the mid-to-low 3.0% range will begin to vanish.
When Will the Fed Increase Interest Rates?
At this point it’s very clear that it’s no longer about “if” the fed will increase the rate, rather “when” they plan on doing so. Will it be by the end of year? Or will it be sometime after the next POTUS takes up residency in the White House?
Federal policymakers have been warning of a federal interest rate increase for quite some time now. Janet Yellen, chair of the Federal Reserve, brought more clarity to the situation recently when she announced the Fed would not pursue an interest rate hike immediately. She did however leave the door open for a potential increase before year’s end.
So when will it happen? No one truly knows — but you can be certain that something will happen in the very near future as the promise of a new Commander in Chief will undoubtedly signal a shift in the country’s monetary policy.
History shows the Fed has remained relatively quiet in the months leading up to the November elections. In fact, 2004 was the only year the fed has increased rates within two months of an election since it began reporting changes in 1984. However, if anything, this trend suggests a rate hike is certainly in the cards in the coming months, possibly even in December of this year or sometime in early 2017.
What a Federal Interest Rate Increase Means for You?
Currently, interest rates are at all time lows — which means borrowing is cheaper than it has been in years. If you’re a homeowner with a mortgage that includes a low interest rate, then chances are you’re in good shape and don’t need to do anything prior to the eminent increase.
But if you’re rate is higher than the current average of 3.5-4% and your monthly payments are still too high as a result, it may make sense to at least see how refinancing could impact your financial situation.
At the end of the day the decision to refinance is all about what your goals are as a homeowner — both in terms of how long you intend on owning the home as well as on your overall financial goals in the near term and long term.
Here are a few examples of why refinancing now may make great sense for you:
Reduce Monthly Payments
If money is tight and you’re trying to save some money, refinancing is a great way to reduce your monthly payments. Homeowners who are only a few years into their 30-year mortgage often refinance after a few years to another 30-year loan at a more favorable rate, which in turn can free up some money every month.
Another common strategy for reducing monthly payments is through refinancing to eliminate your need to pay private mortgage insurance. This example is slightly more complicated. For example, a homeowner with a 30-year FHA mortgage who has good equity in their home, either through paying extra every month or improved market conditions, should consider refinancing because the equity in their home could mean they may be able to get rid of paying for mortgage insurance. This extra money can either go to savings, or you can do what a lot of people do and use that money to pay more each month on your mortgage. This, if planned correctly, could mean you put yourself on track to pay off that 30-year mortgage in only 20 years.
Reduce Mortgage Terms
Another common reason homeowners refinance is to reduce the terms of their mortgage. Many homeowners who have no plans to leave their home any time soon do this because it means not only less years of paying a mortgage, but also a potentially better interest rate.
And while it may mean increased monthly payments, many homeowners in good financial situations do this to lock in a better rate and reduce the length of their financial commitment.
Again, it is ultimately up to your goals and your individual financial situation. Not everyone is prime for refinancing. But seeing that an interest rate hike is on the horizon, it only makes sense to try and lock in a new rate before it’s too late.
Why Now Is the Best Time to Refinance?
A typical refinance can take anywhere from three weeks to as long as 30 days to finalize. So, with the clear indication that something will happen in the coming months, it only makes sense to consider you options now — before it’s too late.
It’s not rare for the simple mention of interest rates or mortgages to stress someone out, but realistically a few hours of your time dedicated to researching and working with a mortgage broker could mean major savings down the road.
The Typical Refinancing Timeline
No refinancing is ever the same. Some borrowers require a lot of information before making a decision. Others have it all figured out and need the help of a broker to make it happen. Some people have their friends say, “You should really refinance to get a better interest rate” and have no idea what that means or how to go about doing it.
If you’re unsure of the time commitment of refinancing your home mortgage loan, a typical refinancing involves small bursts of time being dedicated to speaking with your broker, meeting with underwriters, scheduling appraisals etc. A borrower with all of their information at hand can typically fill out an application and questionnaire, sign some disclosure documents and get a quote within a day.
Some borrowers need more time to gather documents, such as tax returns and pay stubs, in order to move along in the application process. A typical refinancing takes 30 days — and in some cases even less.
At Blue Water Mortgage, we have helped countless borrowers figure out a refinancing plan that makes the most sense for them. If you’re considering refinancing but just aren’t quite sure, we’ve created a Home Refinance Loan Checklist to help you make the right decision. Don’t hesitate to contact us with any questions you have about your refinancing options.