2015 looks like prime time to refinance

Posted by  on Jan 29, 2015

Are these the best of times for home refinance? To be sure, there have been times when mortgage rates have been lower, or when home prices have been higher. But there has never been a combination of conditions to match the current mix of fairly low interest rates with relatively high home prices. Throw in easing loan standards, and 2015 shapes up as an ideal time to refinance.

Here are five reasons this may be the prime time for refinancing:

  1. Mortgage rates start 2015 lower than a year earlier. Last year rewrote the script for mortgage rates. Before 2014 played out, it seemed clear that 2013 was going to be the turning point for those rates. After all, during the course of 2013, 30-year rates rose from 3.35 percent to 4.48 percent. Late that year, the Federal Reserve announced a shift in policy that would phase out its downward pressure on mortgage rates. It was widely assumed those rates would continue to rise, but then the unexpected happened. Rates slid back to 3.87 percent over the course of 2014 -- not quite back to record territory, but still among the lowest mortgage rates in history.
  2. 15 Yr. Fixed - Refinance Rates from Our Lenders in VA

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  3. Home prices continue to recover. Back when mortgage rates were hitting record lows, the catch for many homeowners was that home prices still had not recovered sufficiently for them to have positive equity. This barrier to refinancing has steadily been easing as home prices continue to bounce back. While the pace of the housing recovery slowed at times in 2014, the bottom line is that all 20 major housing markets tracked by the S&P/Case-Shiller Home Price Indices still show year-over-year gains. That and the regular payment down of mortgage principal over time should add up to more mortgages coming out from under water and back into positive equity territory.
  4. HARP refinancing is still available. For homeowners whose property values have not yet recovered, the Home Affordable Refinance Program (HARP) can be a pathway to refinancing for those who qualify -- and 2015 is scheduled to be the last year of this program.
  5. 97 percent LTV mortgages are available. Homeowners who do not qualify for HARP may qualify for refinancing at a 97 percent loan-to-value (LTV) ratio, which means only 3 percent equity is necessary. That significantly lowers the bar for those interested to refinance.
  6. Employment is up. Outside of mortgage and housing news, the broader economic picture shapes up in a way that supports refinancing activity. 2014 was an excellent year for job growth, and that is good news for refinancing in two ways. First, putting people back to work improves credit conditions, which gives lenders more confidence to make loans. Second, having more people earning a paycheck increases the pool of potential home buyers. That provides further support to the recovery in housing prices.
  7. Inflation is down. Through November, the Consumer Price Index was up by just 1.3 percent year-over-year. Low inflation is essential to low mortgage rates, and price increases continue to be unusually low.

It is a nice combination of conditions, but the reality is that conditions change. Looking at interest rates, home prices, and lending standards, you can tell that this is a prime time to refinance; what you cannot tell is how long this period will last.

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