Is it really wise to refinance or buy a home now, or will mortgage rates drop lower?
The Federal Reserve talks about being dedicated to keeping mortgage rates down, and a few experts say there is the possibility that interest rates could dip slightly before going higher. However, we have already been enjoying record-breaking low mortgage rates for quite awhile. So perhaps the best question isn’t “Will mortgage rates drop lower?” but “When will mortgage rates spike higher?”
When Will Mortgage Rates Start Going Up?
Of course, in reality mortgage interest rates could start going up dramatically at any time. Mortgage lenders and banks certainly aren’t making money loaning in the current market even if they want to lend. Mortgage giant Freddie Mac has already come under fire for betting against homeowners and is heavily invested in not seeing people refinance at today’s low rates. You wondered why it was really so tough to get a mortgage loan right now?
Thankfully, being an election year, mortgage rates shouldn’t spike too high between now and November, even though the Mortgage Bankers Association has predicted over a half percentage increase between now and the fourth quarter.
However, most analysts and economists do not anticipate a serious jump until sometime between the first quarter of 2013 and the beginning of 2015, as echoed by President of Equity Now, Michael Moskowitz and CEO of Luxury Mortgage, David Adamo in a recent Fox News interview.
Wait. There’s Bad News!
Unfortunately for those who wait, even if mortgage rates do go down or stay steady, loan costs are on the increase. New regulations resulting in a bigger burden and more work for lenders along with a spike in the housing market is likely to see lenders increase fees. On top of this, the government has been quietly passing legislation requiring higher costs on conventional loans and “affordable” FHA loans. For FHA borrowers this will likely mean an increase of around $200 a year depending on the loan amount and almost half a point to the rate or fees of Fannie Mae and Freddie Mac guaranteed loans. Yes, this is the same administration doing everything it can to help desperate homeowners and boost the housing market.
How Much Will I Lose if Mortgage Rates Drop Lower?
So if you are the gambling type, the worst that could happen if you bet mortgage rates will go down and they simply stay the same is you will end up losing a couple hundred dollars on higher loan costs, right?
There may be a few areas of the country still battling against the downward pull of foreclosures on local home prices, but an upswing is definitely sweeping the nation. A “Seller’s Market” has already been called by real estate agents in some parts of the country, and areas like Miami have been posting record sales figures that even out pace those at the height of the boom of the early 2000s. In fact, according to Trulia, the average price per square foot there has leaped an incredible 142 percent recently.
So for homebuyers who are still sitting on the fence, waiting any longer could see the rise in home prices easily mean paying tens of thousands more for the same property in a few months, even if mortgage rates stay put. That’s on top of increased borrowing costs.
If rates do go up, the scenario gets much uglier. For example, those taking out a $250,000 home loan today at 3.25 percent would bag a tasty $1,088.02 monthly payment. If interest rates spiked to just 5 percent, that monthly mortgage payment would jump to $1,342.05. Worse, it would actually mean paying just shy of an extra $100,000 more over a 30-year loan.
Are you really ready to bet $100,000 that rates won’t go up?
That’s a lot of toys, trips to the salon, fancy dinners, a pretty nice car or even a whole other house!
How to Win if Mortgage Rates Do Drop Lower
Clearly, with mortgage rates so low, it is foolish not to take advantage of them to say the least. Especially considering the high costs of waiting.
If pride is an issue, and not having the best interest rate on the block is not an option, note there are now loans and lenders who claim they will refinance you and let you float down to new lower rates should they drop later. However, make sure that you are truly aware of all the costs involved in doing this.
For those purchasing a home, remember that buying a short sale, REO or new construction property could easily take months to close on. That means you can lock in a great contract price today and apply for a loan. Lock your rate, and if home loan rates go down, request a float down.
So will mortgage rates drop lower? Possibly, but they are more likely to go up. And if you are already getting the deal of a lifetime, why gamble and risk losing out?