Why You Should Refinance Now!
Here’s the Bottom Line Up front: Refinance Now!
Whether you do a Rate & Term Refinance or Cash Out Refinance, now could be the time to strike if you did not take the opportunity in 2020 or 2021.
Here’s your top 3 reasons:
- Home Equity is the highest it’s been since the housing collapse of 2008/2009
- Rates we’re artificially low all year due to the Fed injecting $120 Billion a month into the markets
- The window of opportunity is closing…and it only started days ago, but we know when it will end: Mid-2022
Keep reading to gain more in-depth insight to why this is all happening and what you can do about it.
How did we get here?
To keep financial markets moving in 2020 and to avoid all out collapse, the Fed stepped in and started purchasing $120 Billion (with a B) in bonds per month. PER MONTH. This directly shares risk with the open markets and also creates larges baskets of new money available to be lent out. What do we know from the law of supply and demand? When there’s a lot of supply of something, it’s cheaper to get. When there is less supply of something it is more expensive. So, what we had here was a situation where the Fed participation really altered 2 functions: risk & supply.
Then what happened is the greatest purchase and refinance run the mortgage industry had ever seen in this short window of time (only rivaled by the early 2000’s which turned out to be a bunch of risky loan types and artificially inflated home values). Today what we have is home values which rose as a direct correlation to the cheap cost to borrow (because that means you can now afford “more home”) coupled with the behavior shift of large swaths of the American homeowners re-thinking what they want their home life to look like. What if I have to stay home to work? What if my kids are distance learning long term? What if locations I like to frequent shut down temporarily or permanently? So on and so forth. We saw consumer behavior change BIG TIME in how people shop, move from place to place, where they spend their time, how they spend that time, and who they spend that time with. Well, what’s that got to do with housing? THE HOME took on whole new level if importance in 2020 and into 2021 because we all chose to or were forced to RE-THINK how we do life.
As a result there was a surge of demand especially people who were fleeing dense urban areas for more spacious single family home type neighborhoods and even some who fled the state of California for less restrictive measures found in other states. Add to that, a less expensive barrier to entry in order to acquire that new “dream home” in another state and you saw a crazy run up of demand which pushed prices higher.
For homeowners who hunkered down and decided to stay put, their decisions we’re much more financially influenced so that the home they kept could be less expensive to keep OR could do the heavy lifting and become the cash machine for the upgrades, expansions, and remodels people aspired to complete. Refinance volumes were through the roof in 2020 as banks and lending institutions posted their highest funding volumes in history.
As the economic train rolled on, we started to see data emerge which began to change the tone of the Fed. Measurements such as inflation & unemployment became the 2 most commonly cited figures under their microscope as barometers which would determine when they would begin to ease up their $120 Billion a month in participation. Recently you have probably heard the term “Tapering” which is just their way of saying they will be less involved in the markets over the course of months ahead. Tapering was floated mid-2021 as something they were “talking about ‘TALKING ABOUT’” But that they did not have a specific time frame for beginning to taper, and were focused on the fundamentals which would support that eventual move to start decreasing their participation in the markets. Jump to September 2021. After the Fed concluded their 2 day meeting on Wednesday September 22 Fed Chairman Powell in his prepared remarks commented that they expect Tapering to conclude by mid-2022 but made NO mention of when that would begin. So lets put our rational thinking caps on for a second and think this through…in order to hand off all the risk back onto the open markets in only 9 months (September 2021 to Mid 2022 Let’s just say end of June 2022)….what would be the least shock to the system: spreading out that decrease in participation or doing on chunks at the last minute? I hope you concluded “spreading out” their participation, because that’s what it seems like is happening.
So what does all this have to do with mortgage rates?
As we have previous discussed, mortgage rates come from Mortgage-Backed Securities and volatility in the bond market can shift and change mortgage rates during any trading day. Here’s an example, as you can see in this chart these are daily candle sticks showing fluctuations in the 10Year Note. From July to August things were bouncing around in this 1.175 to 1.350 range.
Then the Fed made their comments last week about when tapering would END and the daily candle rocketed up because now the markets know WHEN THE FED WILL BE ALL THE WAY OUT. Time will tell if that’s the actual conclusion of their tapering, but you can see the reaction went right into a previous area of interest (marked off in the greyed out rectangle). In the 4 trading days since this move up, the 10Year Note has continued to climb and has not yet returned to that marked off area of interest to create a support. How this directly affects you as a homeowner is it makes mortgage rate increase. Thursday September 23, Friday September 24, Monday September 27, Tuesday September 28 has mounted increasing pressure on mortgage rates offered by banks today.
AND THIS IS WHY TODAY’S ARTICLE IS SO IMPORTANT
Applying the law of supply and demand would predict that an increase in rates would decrease the cost one would be able to afford right? So, its likely we will see a flattening of home prices because now we have a new affordability struggle on our hands. If your rate increased by .25% or .5% then what you can afford decreases. And this brings us to the APEX of Quarter 4 refinances NOW while your equity is at it’s highest and the rates are still relatively low.
- Projecting out the next few months, you should expect to see home values stabilize and begin to flatten. Simply put, if you need cash out or need to refinance to eliminate mortgage insurance, do it while you can.
- You should expect interest rates to rise throughout the period starting now and persisting to mid-2022 when the Fed expects to be completely out of the market. Unfortunately, I cannot support the argument that lower rates are on the horizon because technical data + Fed Speak, does not add up to that outcome. The historical Low Lows of 2020 and early 2021 are in the rear view as I’m recording this message so your best option is to take action while you still have the relevant factors in your favor as a homeowner.
So, what are my options?
There are a lot of choice in the market still. Especially given the data we’ve discussed today. We’re now going to overview all the sensible choices you can still make this year to secure your mortgage financial future.
- VA IRRRL up to 100% of value. Short for the VA Interest Rate Reduction Refinance Loan, this is the VA version of a “streamline” refinance. The process is easily accessible, quick to complete, with no out of pocket expenses. There is a mandatory savings requirement in order for the Bank (and therefore the VA Guarantee) to fund and close your loan. In short, unless you save enough money monthly we can’t even offer it to you. We personally believe this is a VERY strong safeguard that prevents VA eligible homeowners getting scammed.
- VA Cash out up to 100%. This is the VA product that allows you to pull out home equity as cash for whatever reasons you’d like:
- Debt consolidation – Paying off high interest loans or credit lines, high balance loans, car loans, student loan debt, or any combination of these.
- Save for a rainy day – Are you worried about economic outlook? Stash cash if you’d like
- Schooling & Tuition – Private school or college savings have emerged as two more recent explanations clients have told us they are using cash out for.
- Make your “forever home” a home you want to live in forever by remodeling or upgrading and making those changes your friends have done, but now its your turn to let your home pay for that too!
Conventional Rate & Term Options
- Rate & Term up to 80% Loan to Value. This is pretty much a RATE REDUCTION ONLY to reduce your monthly mortgage payment and there is NO Mortgage Insurance.
- Rate & Term up to 80% Loan to Value to ELIMINATE MORTGAGE INSURANCE ON EXISTING LOAN. If you have a conventional loan or FHA loan with Mortgage Insurance you can refinance OUT of that loan now and eliminate the mortgage insurance moving forward. As long as you have 20% equity in your home, you could be looking at saving hundreds of dollars a month by eliminating your current mortgage insurance.
- Rate & Term >80% Loan to Value. This scenario would be for those of you who still have a high market rate from 2019 or prior and even with Mortgage insurance (because you have less than 20% equity) would still benefit from today’s rate and monthly savings. My suspicion is most of you watching this have well over 20% equity as a result of the past 2 years run up in home prices, but talk with us and we will help you sort that all out.
Conventional Cash out Options
- Cash out to 80% Loan to Value with NO Mortgage insurance. As previously mentioned in the VA Cash Out section, reasons you would want to do this pertain to: debt consolidation, saving for a rainy day, schooling & tuition, or upgrading your forever home.
- Convert your current VA loan into a conventional loan to free up your VA eligibility for an out of state move you plan to make. Whether its in 6 months, 2 years, or beyond, getting out of your current VA loan and into a conventional loan allows you to reinstate your VA eligibility for subsequent use down the road. This means if you end up moving elsewhere in the country sometime you can tackle THAT purchase with 100% VA financing. We are seeing a lot of this from our active duty members who know they will PCS in 2023, 2024, 2025 and plan to purchase a home in their next duty station using their VA benefit – AND – want to keep their home here in San Diego. Afterall, when they PCS out, don’t we also have active duty PCSing into San Diego? Yes, yes we do.
In Conclusion. The time is now for all of you who waited to refinance your home and set your mortgage future in motion. We know that rates on the table just a few short months ago are not here for us now. We can ascertain that an increase in rates is likely to continue barring a catastrophic black swan type of global economic or even just United Sates economic unraveling. The Fed has told us enough to come to these conclusions and the window to maneuver yourself into proper position for the future is now. The equity is there, the window of the bottom of the rate market is slowly closing, and we can reasonably conclude that higher costs are on the horizon.
If anything in this video spoke to you, sounded like things you’ve been asking yourself, covered options you have previously mulled around in your mind, please let us know so we can help you. We are ready to help our past clients, plus your family and friends who may not know what we’ve shared with you today. Call, email, direct message, or comment on this video so we can get started helping you right away. Remember to this video so you can be helping others understand what’s at stake so they can also make the best choice for their family too. Thank you!
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Rates & Fees Disclosure:
‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.
‡ Based on Mortgage Heroes internal data.
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