Many home wners took it on the chin during the housing crisis. Now, a combination of falling refinance rates and rising home prices could give you a chance to fight back.
For homeowners who have had to sweat out underwater loans, this may be a long-awaited opportunity to refinance mortgage rates. For those who have already been able to take advantage of low rates, trends in mortgage rates and home prices may create new opportunities to access home equity cheaply. Either way, these developments help open up new options for home owners.
Trends in Mortgage Refinance Rates and Home Prices
For the first time since 2005, 30-year fixed mortgage rates rose last year. This was expected to be the beginning of the return of mortgage rates to more normal levels, but a funny thing happened on the road to normalcy.
From the start of 2014, mortgage rates began falling, and they kept falling - by a total of more than 30 basis points (30/100ths of one percent) so far. According to the Federal Reserve, they ended August at just 4.12 percent, less than half their historical norm.
While mortgage rates have been low and getting lower, home prices have continued their long recovery from the collapse of the housing bubble. According to the S&P/Case-Shiller Home Price Indices, national home prices have been rising since early 2012, and gained 4.31 percent in the first half of this year.
While this leaves the average national home price still some 9.9 percent below its July of 2006 peak, another way of thinking about it is that home prices are now higher than at any time except for a three-and-one-quarter year period from April of 2005 through June of 2008. In other words, except for people who bought during that narrow window, most people should be seeing their homes become worth more than they paid for them by now.
The Best of Both Worlds for Refinancing
When mortgage rates first plummeted to record lows, the cruel catch for many property owners was that they could not take advantage of low mortgage refinance rates because their existing loans were underwater. The last few years have been a nervous time for these home owners - hoping that housing prices would recover before mortgage rates started to rise. Now though, the waiting should increasingly be paying off.
Refinance mortgage rates remain near record lows, while housing prices have recovered most of their losses. Even for people who bought during the peak years of the housing bubble, by now the combination of rising home prices and the payment of principal over time should have brought most loans out from under water. This combination of low mortgage rates and recovering housing prices makes this a best of both worlds for refinancing.
New Home Equity Opportunities
So, what does this mean to you if you already locked in low interest rates, either because you bought at the right time, or already refinanced?
Well, those same best-of-both-worlds conditions for refinancing also apply to home equity loans. Rising home prices help boost the amount of equity available to home owners, while low mortgage rates make accessing that equity more affordable.
Use home equity loans cautiously - remember, one reason some mortgages ended up under water was because of overly aggressive home equity borrowing at the housing market's peak. However, if you have an improvement project that will help add value to your home, this is an opportunity to get that improvement done at low borrowing costs.
For much of the era of low mortgage rates, those low rates were accompanied by falling home prices. Now, mortgage rates have remained low while home prices have mounted a sustained rally. That opens up new options for home owners, but those options may not be available forever.