Hurry and Refinance Before October – Here’s Why
If you are thinking about refinancing your home, here’s why you should do it before October. Acting now could save you some costly mistakes. In October, interest rates will start to rise and are expected to reach new heights, which can make your refinance cost you even more. The government is expected to taper off their stimulus plan come October 2014.
The federal stimulus plan was created to kick-start the economy after the financial crisis. Through the stimulus plan the government started buying up mortgage-backed securities. This plan was introduced to help influence private interest rates, which would encourage people to borrow money in the end. Now that the end has come, mortgage rates are expected to get much higher this fall.
Right now, all signs point to rates going up in the near future; therefore, it makes sense to refinance now before they do. If you wait, you will only end up paying a higher mortgage because you will be paying a higher interest rate.
In the outlook of the future, rising interest rates are not the only thing to worry about. Once higher rates come into play, fewer people will be able to afford to buy a new home, which ultimately means a larger inventory of homes to choose from. This will slow down the appreciation of everyone’s real estate value. And it’s the value of your home that lenders look at when you refinance your mortgage.
If you don’t have an 80% loan-to-value ratio, don’t even bother. As your home value appreciation slows down, your loan-to-value ratio will become higher and the lenders are not keen on giving mortgages if the numbers are not right.
Use your equity now while you can. You can reap the rewards from last year’s very strong home appreciation by refinancing as soon as possible. Your home may be worth more than you know. Refinancing is more appealing before the interest rates go up because in most cases you have more equity in your home, which will place your loan-to-value ratio lower.
Here’s an example: If you owe $100,000 on a $250,000 home, you can refinance the mortgage for $150,000. In an ideal situation, you could get a lower rate on your $100,000 loan and get back $50,000 to spend as you like. You can use to for your child’s college education, a new car, vacation, renovations, home improvements, and more. The best way you could spend it is by putting it back into your home in some way.