Considering refinancing your mortgage? If you hold off until the fall, you might not be able to afford it.
If you’ve been putting off that mortgage refinance you’ve been thinking about, beware: you might not be able to afford it – or even qualify – if you wait until fall.
Why? Rising interest rates, an improving economy, and impending stricter lending guidelines mean waiting a few months to refinance a mortgage could be a costly mistake.
“People should not hold off on a refi,” says Mike Premny, owner/operator of Icon Capital Group, Inc., a mortgage brokerage in San Francisco.
Here are three reasons mortgage experts say you should refinance before fall arrives.
The Government May Stop Investing In Mortgage-Backed Securities
Are you holding off on a refinance until the government confirms the economy is improving? Doing so could make your refinance more expensive. Why?
In March 2013, Federal Reserve Chairman Ben Bernanke said the Fed may adjust the pace of buying mortgage-backed securities according to the pace of economic recovery – which means slowing purchases if the economy improves.
The problem is that the buying of mortgage-backed securities has been a large contributor to rates staying low, says Dean Vlamis, VP of Residential Lending at Perl Mortgage in Chicago, IL.
In fact, rates have already jumped in recent weeks since the Federal Reserve Board starting hinting at ending the buying program. For example, the average interest rate in May 2013 for a 30-year fixed-rate mortgage was 3.54 percent, and jumped to 4.07 percent for June 2013, according to Freddie Mac.
So with rates already on the rise, the time to lock in a rate is now – before they go up even more.
Tightening Credit Guidelines May Make it Difficult to Qualify
Though they won’t come into effect until January 10, 2014, changes are coming to laws that govern how strict lenders have to be when qualifying borrowers for mortgages, including refinances. And your lender may soon start getting ready to use the new guidelines.
Amendments to the Dodd-Frank Act, a consumer protection rule that identifies mortgage qualification criteria, will require lenders to confirm at least eight criteria through third-party documentation, including other debts, child support and alimony payments, and income.
Because of these stricter qualifying standards, prospective homeowners may find it difficult to get approved for a loan.
And don’t be surprised if the guidelines start changing before January 10th.
“Some lenders may adopt tighter credit guidelines later this year in anticipation of new Dodd-Frank rules set to take effect in January 2014,” says Mayfield.
So, to avoid the extra paperwork and tighter application requirements, homeowners should refinance now – before their lenders implement these changes.
Improving House Prices
The median existing single-family home price rose a whopping 12.9 percent in the 12-month period from May 2012 to May 2013, according to the National Association of Realtors. And while the real estate market is improving, it may not be good news if you’re planning a fall refinance.
“For the first time in years home values are increasing,” Vlamis says. And while higher home values give refinancers more equity in their homes, Vlamis also cautions that an improving real estate market also means that interest rates are likely to rise even higher – so you have to act soon to reap the benefits.
What’s more, Mayfield says it can take longer for a loan refinance application to be approved than a mortgage on a new home purchase. And with the housing market improving, refinance applicants may be waiting in a long line to get their paperwork processed.
“Borrowers should be aware that lenders typically give priority to purchase loan applications over refinances,” says Mayfield. In fact, borrowers who want to refinance in the fall may have to wait longer for their transactions to close as the purchase market continues to pick up, she warns.