Last Call to Refinance Your Home

It's getting late. The bartender is looking at the clock on the wall. You had better belly up to the bar or miss out, because it's about time for last call.

That's about where things stand with refinancing. Conditions have rarely, if ever, been more favorable, but it is starting to look as though last call to refinance your home may be approaching.

The good times are still rolling

The party isn't over yet. Data from mortgage finance company Freddie Mac showed that 30-year mortgage rates remained solidly under 4 percent as of late May. Rates on 15-year mortgages - a popular choice for refinancing - were just above 3 percent.

Meanwhile, the S&P/Case-Shiller National Home Price Index indicates that home prices now are higher than at any time other than a roughly three-year period at the height of the housing boom. That means that between price gains and principal payments made over the years, the number of mortgages that are "under water" - those with balances greater than the value of the property - has subsided greatly.

Finally, for those relatively few home owners whose loans remain under water, the government recently extended the Home Affordable Refinance Program (HARP) until the end of 2016. If your loan is owned by Freddie Mac or Fannie Mae, this program may make you eligible to refinance your home even if you have little or no equity in it.

Still, all good things must come to an end. There are good reasons to believe that the good times for refinancing may not keep rolling much longer.

6 signs that last call may be coming

Here are reasons you might want to act now before you miss your chance to refinance your home:

  1. Employment has regained its rhythm. The Bureau of Labor Statistics reported that employment growth topped 200,000 in April, regaining the healthy pace of the past year or so after a brief stumble in March. Given the stubborn unemployment that plagued the economy in the aftermath of the Great Recession, getting people back to work has been the key to restoring some momentum to GDP growth. With that growth comes greater demand for capital - borrowing by businesses and consumers alike who have the means and confidence to invest in the future. That demand for capital puts upward pressure on interest rates. Also, as the unemployment rate drops towards 5 percent, wage growth is starting to improve. That could put an end to the exceptionally low inflation the economy has seen lately, and that low inflation has been instrumental in allowing mortgage rates to remain near record lows.
  2. Oil prices are rising. Speaking of low inflation, another reason to believe that prices may start to rise more rapidly is that oil prices have started to bounce back after their dramatic slide last year. Oil has a particularly strong influence on inflation, since petroleum is used in the manufacture and transportation of so many other products. From a refinancing standpoint, the important thing about inflation is this: lenders who are making loans for 15- or 30-year periods are going to be especially wary about any sign that inflation is heating up, and will make sure they set their mortgage rates high enough to give themselves some protection.
  3. The Fed is nearing a turning point. Minutes from Federal Reserve meetings no longer focus on stimulus measures; increasingly, they deal with the conditions under which the Fed will start to raise interest rates. Employment growth and a more normal inflation rate are the two key things the Fed is looking for before it changes its rate policy, and as the above two points show, conditions for the Fed to make that change may be starting to fall into place.
  4. Home prices continue to recover. This is a good thing for refinancing in some ways - it means that more and more home owners have enough equity to refinance. However, many of the government policies that have made refinancing conditions so favorable, from initiatives like HARP to the Fed's low interest rate tactics, have been predicated on trying to support the real estate market. As that market shows it is capable of standing on its own two feet again, expect less emphasis on refinancing-friendly government policies.
  5. An election year is looming. The Obama administration has been very sensitive to supporting home owners. The closer the nation comes to a different administration, the more it approaches a day when it might see very different priorities in the White House.
  6. History has a strong pull. Federal Reserve figures show that over the long run, 30-year mortgage rates have averaged 8.42 percent - a far cry from recent sub-4 percent levels. While financial history does not repeat itself in any kind of orderly or predictable manner, there is a significant force known as reversion to the mean. This means that the further numbers stray from their historical norms, the more likely they are to start heading back towards those norms. Mortgage rates have been a long way from normal for a long time. That does not mean there is reason to expect 8.42 percent mortgage rates any time soon, but it does mean you should not be surprised if rates start taking a few steps in that direction.

When it comes to refinancing, the bell for last call has not rung yet. However, when you look at the signs, it seems it is getting pretty late. Better make your move now.

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