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Re-opening the refinance window

Posted by  on Jun 13, 2014
 

Mortgage rates recently dropped to their lowest level since last October, but that's not the only thing you should be watching if you are waiting for a chance to refinance. For many homeowners, home prices need to rise as mortgage rates fall in order to create a refinancing opportunity. Fortunately, both trends have been steadily developing in favor of refinancing.

A fresh shot at refinancing

The record low mortgage rates of recent years touched off an unprecedented wave of refinancing. For many American households, the opportunity to lower their mortgage rates was a godsend. The Great Recession and its aftermath created many financial hardships, so the chance to lower expenses by refinancing could not have come at a better time.

Unfortunately, while this refinancing wave was a window of opportunity for some, others found themselves stuck outside the refinancing window, looking in. They could have benefited from lower mortgage rates, but depressed housing values left their mortgage loans under water and they were unable to refinance.

When mortgage rates started rising last year, homeowners who had been prevented from refinancing because of housing values may well have felt that they had missed their opportunity. Now, however, with mortgage rates headed lower again, the refinancing window may be opening once more.

Coordinating the elements of refinancing

Here is an update on how lower mortgage rates and rising home values are coming into place to create a possible new wave of refinancing opportunities:

  1. Current mortgage rates. According to data from the Federal Reserve, 30-year mortgage rates ended May at 4.12 percent, the lowest they have been since last October. Take care, though, because this dip in rates may not last long. After touching as low as 4.10 percent at the end of October, 30-year rates were up above 4.5 percent by early January. In addition to following the general trend in mortgage rates, you should compare mortgage quotes from specific lenders. Getting a particularly good deal on rates might make the difference as to whether refinancing is worthwhile for you or not.
  2. Home values. Though the pace of home price increases is slowing, prices nationally are back up to the level first reached in the spring of 2004, according to the S&P/Case-Shiller US National Home Price Index. Home prices stayed above that level for roughly five years, but since then they had been lower until recently. That means most homeowners who bought their homes from early 2004 to early 2009 paid more for their homes than the properties have been worth in recent years, and are only recently starting to see their mortgage loans emerge from under water. Considering that mortgage rates averaged just over 6 percent from early 2004 to early 2009, getting out from under water should create a new wave of refinancing opportunities for people who bought during that period. Naturally, home values will vary from area to area, but the national trend suggests more and more neighborhoods should be seeing prices improve enough to facilitate refinancing.

Low mortgage rates tend to grab the headlines; but if you are looking to refinance, you should be paying equally close attention to the value of our home to see if you will get a chance to re-open the refinancing window.

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