One of the negatives of an approving economy is inflation. As more people return to work there is more demand for……everything. The improving economy is a good thing as people returning to work instills self-pride as they can finally get that new car, take a vacation or purchase a home. Purchasing a home gets hit with a double whammy as inflation drives up values and mortgage rates. Both have a negative impact on the affordability index for purchasing a home. I am already beginning to hear from people “why did you not tell me” home prices, rates and affordability index are all going up. Truth be told I said it many times verbally and in this blog. So here is the next thing, click on the link to see a short video that breaks down in more detail “It is not always about the rate.”
Over the past few years we has experienced artificially low mortgage rates so people will not want to sell or refinance as they will lose their 3% rate. Simply put those days are gone and will most likely not return in my lifetime. As we move forward with real estate and mortgages we should understand that rates are moving up. Debt reduction to improve monthly cash flow is, for the most part, the only refinance option for most home owners. This is due to increased property values for debt consolidation or to remove mortgage insurance.
Home Owners with FHA loans should consider refinancing to remove the mortgage insurance. FHA mortgages offer many advantages to borrowers but the mortgage insurance in many cases never goes away. If you should have a FHA loan that will allow for the mortgage insurance to be removed then you should know that earned equity does not factor into the loan to value equation for removing the mortgage insurance. It will drop off when the original principle balance is reduced to 78% or in most cases roughly 11 years of on time payments.
It is anyone’s guess as to what the future holds for mortgage rates but 5.5% for a 30 year fixed should be expected. For those of you that are holding out for a 3.0% rate I think it is safe to say that ship has sailed. It is sad to said but rate reduction refinancing is not going to happen for most people.