Mortgage rates have taken a substantial dive during the past year, going from low to absurdly low and perhaps on the way to something even lower. July is turning out to be a very good month for mortgage borrowers, maybe an historic month, in large measure because economies worldwide are weak, the Federal Reserve has been unable to raise bank rates this year and Britain wants to leave the European Union. It's a financial trifecta that should have borrowers giddy with joy.
Freddie Mac reported that 30-year, fixed-rate, prime mortgages were priced at 3.41 percent as of July 7th, down from 4.04 percent a year earlier. If you're borrowing $200,000, the monthly cost for principal and interest went from $959.45 a month to $888.07. Over a period of five years, that's a savings of $4,283.
Mortgage Refinancing & Equity
There's no doubt that mortgage rates have been in the headlines, but that's not the only story. Less visible – but perhaps equally important – real estate equity is on the rise. Combine rising equity with falling mortgage rates and for many people long shut out of the refinancing market now is a dandy time to look at mortgage and refinance options.
Black Knight Financial Services estimates that just in the first quarter, "tappable" equity rose by $260 billion. The technology and data company says that 425,000 homeowners are no longer underwater, adding that "the national negative equity rate down to just 5.6 percent. That's a far cry from the nearly 29 percent of borrowers who were underwater at the end of 2012."
These numbers mean that many homeowners who were once excluded from the mortgage marketplace suddenly have an opportunity to refinance existing loans, ending financing which may be high cost, toxic or both.
Past Mortgage Rates
A quick look at past mortgage rates shows why it is so important for borrowers to consider financing now.
According to Freddie Mac, mortgage rates averaged 6.03 percent in 2008, 4.69 percent in 2010, 3.66 percent in 2012 (arguable the best year for real estate financing in 65 years), and 4.17 percent in 2014.
While equity has been a barrier for many borrowers, another hurdle has been the cash cost to refinance. However, cash does not have to be a barrier. With so-called "no cash" refinancing, a borrower can get a new and lower rate with little or no closing costs.
The term "no cash" does not mean refinancing is free. Instead of cash from the borrower, the lender covers closing costs by offering a somewhat higher interest rate, by financing closing expenses in the form of a larger loan amount or a combination of the two. A bigger loan or a higher rate means a bigger monthly payment than if you were to finance closing costs from your pocket, however the "bigger" monthly payments may still be less than your current mortgage obligation and thus attractive.
Can a no-cash refinance work for you? To answer this question you have to look at the numbers and see if refinancing generates a material benefit when compared with your current situation. For details and specifics, speak with loan officers who offer no-cash options.