A new dip in refinance rates has re-opened the opportunity to save money. In fact, that opportunity might be even more attractive now than the last time mortgage refinance rates were this low.
Think of this as opportunity as a door that has re-opened, but also be aware that this door can quickly slam shut on those who hesitate to act.
The Rise and Fall of Refinance Mortgage Rates
Early January of 2015 saw 30-year mortgage rates drop to 3.73 percent. That's the lowest they have been since May 23, 2013, and back then, rates were on their way up, not down. Mortgage rates had bottomed out earlier that May at 3.35 percent, and then began a fairly steep rise. 30-year rates spent all of the second half of 2013 above 4.0 percent, peaking at 4.58 percent that August.
With that rise, it looked like the era of super-low mortgage refinance rates was over. However, rates reversed course and steadily declined last year, eventually dropping back below 4.0 percent in November, and they have continued to drift downward.
What this means is that you now have a chance to find the best refinance rates in more than a year and a half. On top of that, some changes in the housing market and mortgage guidelines make the opportunity represented by current refinance mortgage rates even more attractive than the last time mortgage rates were this low.
What's Different (and Better) Now
Home refinance rates have been this low before in recent years, but three things make the latest dip in those rates all the more attractive:
- Home prices are higher. Based on the S&P/Case-Shiller U.S. National Home Price Index, the average value of a house has risen by 8.5 percent since May of 2013. That means additional equity for home owners, and improved eligibility for refinancing. People who were previously shut out from refinancing because their loans were underwater or because they lacked sufficient equity now may have seen their property values climb back above their loan balances by a sufficient margin to have a new loan approved.
- Loan-to-value requirements have been loosened. Not only have property values increased, but in some cases the amount of equity you need to refinance has been reduced. Some loan-to-value guidelines were recently loosened, so if your mortgage loan is backed by Freddie Mac, you may be able to refinance with as little as 3 percent equity. Keep in mind also that the government's Home Affordable Refinance Program (HARP) will remain in place until the end of 2015, allowing some home owners with Fannie Mae and Freddie Mac loans who have kept up with their payments to refinance even if they don't have any equity in their homes.
- FHA premiums have been lowered. If you have an FHA mortgage, you may now qualify for a cut in your annual mortgage insurance premium, which will act like a cut in rates. The FHA recently announced that it was cutting those premiums by a half of a percentage point. So, if you refinance an FHA mortgage, not only will you benefit from the fact that mortgage rates have fallen recently, but you could pay an extra half percent less because of this premium cut.
Just remember, low home refinance rates can disappear quickly. Rates hit a low point back in May of 2013, but then rose by more than a full percentage point in just three months. That's how quickly the door to refinancing can shut if you hesitate to walk through it, and right now that door is wide open.