Rates Going Up?

December 7th, 2010 (05:44 pm)

Mortgage rates have gone up over the last two weeks since just before Thanksgiving, and they might not be done on this run upwards. There was a lot of uncertainty surrounding the business climate coming out of the recent elections with looming tax increases set to take effect January 1, 2011. As of this writing though, there appears to be a compromise in place with congress and the white house that will extend the current tax rates on individuals and even cut social security (FICA) taxes as well.

This action has contributed to positive sentiments on Wall Street and will likely cause the stock market to sustain its gains through the end of the year. This of course doesn’t bode well for mortgage rates, but we’ve enjoyed a sustained period of sub-4.5% rates on mortgages that many people capitalized on. For those who hadn’t locked in their interest rate yet, the boat for refinancing may have sailed.

At the same time, banks in general have earned record profits during 2010, so they’re not inclined to be as aggressive in offering mortgages making it even more unlikely that we will see rates as low in the near future as we have seen over the last 4 months or so. Add to this the fact that conventional lenders Freddie Mac and Fannie Mae will increase the rate hike penalties for borrowers with less than excellent credit and less than 25% equity or down payment, and you begin to get the picture that the party is about over.

There is still opportunity though for many to consider refinancing if they haven’t done so and would still benefit from an interest rate below 5%. There is still a lot of debt out there that is NOT tax-deductible, that IS at a higher interest rate, and that CAN and SHOULD be consolidated with a new mortgage. It still boils down to comparing the cost of the debt over the expected time frame for having a new loan.

If someone doesn’t plan to be in a home (or their loan) for too many years, they would be smart to look at a NO CLOSING cost refinance. The decreased interest rate may not be as attractive as what they thought it was going to be a month ago, but it may still make sense. No closing costs? Why not lower the interest rate at least a little bit. If they are going to be in the home a longer period of time, dropping their interest rate even .5% may still be enough to offset closing costs. The key is to compare options and as always to consult a Mortgage Planner for the total cost of each.