Refinancing is like so many projects around the house – you know it needs to be done, but you just don't see any particular urgency to do it now. Truth is though, you need to separate refinancing from those "maybe someday" projects and get it done this year. Below is a list of six reasons why.
6 Reasons to Refinance in 2016
Here are seven good reasons to make this the year you get around to refinancing:
Current refinance rates are among the lowest in history
30-year fixed mortgage rates began 2016 below 4 percent. In over forty years of mortgage history, this is one of only four years to begin with rates so low. Current refinance rates are less than half the historical average of 8.35 percent.
Inflation may not be so accommodating in the year ahead
One reason mortgage rates have been able to stay so low is that inflation has been almost non-existent. The Consumer Price Index rose by just 0.7 percent for calendar 2015, compared with its 50-year average annual increase of 4.1 percent. Naturally, mortgage lenders are going to want to protect themselves against rising inflation, so if inflation moves even a modest amount toward its historical norm, lenders are going to raise mortgage rates to maintain a healthy cushion over inflation.
Home valuations are riding high again
Home prices nationally have recovered to their highest level since October of 2007. In fact, they are higher than they have ever been except for a period of just over two years at the peak of the housing bubble. This means that the vast majority of homeowners should have seen enough equity in their homes restored to give them the flexibility to refinance.
The U.S. economy has gone an unusually long time without a recession
Of course, you never now how long that housing recovery will last. The current economic expansion has already lasted for more than six years. Since the end of World War II, the average expansion has lasted less than five years. Once the economy finally hits a recession, conditions for home equity and getting approved for a loan will probably not be as favorable as they are currently.
The Fed's interest rate move may be the beginning of a broader policy shift
The Fed made big news by announcing a minor uptick in short-term interest rates in December, but barring any economic setbacks, it is expected that this is just the first of a series of moves representing a policy shift towards higher interest rates. Such a shift would eventually include unwinding some of the Fed's inventory of mortgage-backed and long-term bonds. Holding onto that inventory has helped current refinance rates stay so low, but a concerted move to liquidate that inventory would but upward pressure on mortgage rates.
An election year is always a wild card
Speaking of the White House, election years tend to bring an element of financial uncertainty. Pork barrel spending might stimulate the economy enough to push interest rates higher, while uncertainty over future policy direction might make lenders more cautious. In short, the closer it gets to election day, the greater the chance that something will upset the favorable refinancing conditions that now exist.
So, for any or all of the above reasons, 2016 is the year you need to get around to refinancing. Who knows? Refinancing may just save you enough money to pay for a few of those other projects around the house you've been meaning to get done.