Nobody could blame you if you haven't been devoting much time to thinking about your mortgage recently. If yours is a typical working family, you may well relate to a hamster on a wheel: constantly running and going nowhere. Spare moments are few and precious, and jealously guarded as periods of much-needed relaxation.
This is a plea for you to give up one of those rare hours to explore your home loan options. You need to do that because of three important ways in which the mortgage market is moving -- ways that might affect homeowners and those wanting to be homeowners alike. And doing so could save you thousands -- maybe tens-of-thousands -- of dollars.
Interest Rates and Home Prices
This applies to those who are renting, and putting off getting onto the first rung of the housing ladder. No matter how busy you are, it's almost certainly time to stop procrastinating, and take the plunge. (Can you plunge onto a step of a ladder? You can certainly plunge off one.)
Two trends (rising home prices and home loan rates) are likely to make further delay very costly. Of course, nobody can predict what will happen to either of those with any real certainty, but both Fannie Mae and the Mortgage Bankers Association (MBA) have teams of economists dedicated to making the best possible forecasts.
In September, Fannie's team was expecting the median price of a new home to average $203,000 in 2014, up from $193,000 in 2013 and $177,000 in 2012. The MBA's August forecast predicted those same figures to be $200,600, $192,600 and $175,400 respectively. Whichever turns out to be closer to reality, home prices look set to carry on their rapid rise.
It's the same with home loan rates. The MBA expected those for 30-year fixed-rate mortgages (FRMs) to average 4.9 percent in 2014, while Fannie thought they'll climb even higher: 5.1 percent. Split the difference between both organizations' forecasts, and put the price and rate figures through a mortgage calculator (ignoring down payments), and monthly payments for someone buying an average home could be over $100 higher in 2014 than 2013. That's $36,000+ over the lifetime of a 30-year loan.
Refinancing an Option for More Homeowners
Rising home prices may be an enemy of those yet to buy a home, but they're a real friend to current owners -- and especially to those who've had (or still have) underwater loans. Really good news emerged for them in September, when CoreLogic published its Equity Report for the second quarter of 2013.
It revealed that the total value of negative equity (the extent to which mortgage balances exceed home value) in the US plummeted by 25.7 percent during those three months. And the number of underwater loans dropped 2.5 million over the same period.
If yours was among those 2.5 million (and you either didn't know about or were ineligible for the federal Home Affordable Refinance Program, or HARP), this may be your first opportunity for years to refinance. And, again, the potential monthly savings could make giving up some of your me time seriously worthwhile.
End of the 30-Year, Fixed-Rate Mortgage?On Sept. 22, The Wall Street Journal explored various proposals for reshaping the mortgage market, and one that's popular among many politicians is a complete withdrawal of the government from it. That would very likely result in an end to the supply of new 30-year FRMs, which are relatively rare in other countries.
Lending over the very long term and borrowing in the short term is something only governments can realistically do -- and then only sometimes. Why on earth would a private investor want to lend money for 30 years at today's rates (which remain very low by historical standards), when he or she is almost certain they're going to rise -- possibly quite soon and by quite a bit?
Of course, we're still a very long way off making any actual changes to the market, and it may well be that legislators will ultimately chicken out of making such sweeping reforms when faced with the potential political costs. But the fact there's a credible threat to 30-year FRMs may well be incentive enough for those who have them to make sure they're meeting their long-term needs, and those who want them to get them before there's any chance of their disappearing. That may mean refinancing or bringing forward a move for the first group, and buying a first home or refinancing an adjustable-rate or short-term loan for the second.
One thing's for sure: There have rarely been moments in recent history when homeowners and those who want to own their homes would have been better advised to find time to review their options.