Now May Be the Time to REFINANCE!
Economic conditions in the U.S. have continued to fluctuate, gas prices have continued to increase and the movement of short and long-term interest rates has baffled most experts, let alone consumers. Housing prices have soared upward while wages have remained fairly stagnant. Where does this leave us?
Greenspan’s comments on Friday warned “that recent gains in U.S. home prices, stock values and other forms of wealth may be temporary, and could easily erode if investors become more cautious.”
In addition, recent reports indicate that Americans are farther in debt than ever before, to the tune of about $11 trillion. Instant credit, interest-only payments, low starter interest rates, etc. have played a major role in the creation of all this debt.
The refinance boom of the last few years was fueled by record low interest rates. Now, however, may be the time for all those homeowner’s who have those interest-only pay-option ARMs to seriously consider refinancing into a fixed rate. As interest rates continue to climb, there may not be another opportunity to get a 30-year fixed rate mortgage below 6% for a long time to come.
As rates were on a downward trend for several years running, those ARMS seemed to be a reasonable choice but when the trend shifts in the other direction, they may pose a serious financial risk to many homeowners. How do you determine if refinancing now is right for you? Consider the following questions:
1. Has your rate adjusted upward a half-point or more in recent months?
2. Are you nearing the end of your “fixed” period on an adjustable rate loan?
3. Do you have a pre-payment penalty?
4. If your interest rate increases more than one point, will your monthly payments still be affordable?
5. If you are in an area where the housing market is beginning to cool, will your home’s value be in jeopardy of going down?
6. If you bought with 100% financing, will you have any equity in your home if the market cools?
7. Do you have enough savings to support your monthly bills for several months if you are suddenly unemployed or disabled?
After asking and answering these questions, think about what you could reasonably afford for a mortgage payment. If an increase of one or two points in interest rates would make your monthly payments uncomfortable or even difficult to meet, you may need to refinance now, rather than risking a higher rate later.