5 Smart Moves to Make While Rates Are Still at Historic Lows

Mortgage Rates Are Still Historically Low

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By now you may have heard that last month mortgage rates recently rose for seven straight weeks before hitting a nine-month high. Given the recent rise, one may be inclined to feel that it is already too late to take advantage of the low rates of the last year. However, when we look at mortgage rates from a historical perspective it’s apparent that there is still a tremendous opportunity to make some very smart moves - even if rates continue to rise. Making that move now could shorten your term, lower your payment, and much more. Let’s take a closer look at a few benefits of locking in today’s near historically low rate.

Freddie Mac and the 30-Year Fixed Mortgage

According to the latest data released from Freddie Mac, the 30-year fixed-rate mortgage decreased by almost ten basis points to 3.04% That’s not only lower than the current 52-week high of 3.45%, but compare it to the average mortgage rate in 2000 of 8.05% and it’s easy to understand how Qrates are still historically low at the current time.

In September 2020, the Federal Reserve shared its plans to boost the economy and according to CNBC the Fed intends to hold interest rates near zero at least through the remainder of 2021, perhaps even longer. The good news for borrowers is that rates remaining near historic lows offer yet another opportunity for those who have not refinanced to consider doing so.

Here are five benefits of taking advantage of this unique opportunity to lock in low rates:

   

#1: Lower Your Monthly Payment

Depending on the details of your refinance, decreasing your rate even slightly could substantially lower your monthly payment. The timing is right to determine if you’re eligible to save hundreds of extra dollars per month. Many homeowners that have already saved thousands of dollars each month through refinancing have put some of that money towards upgrading spaces around their homes.

 

#2: Cash-out Refinance

Over time your home builds value known as equity. A cash-out refinance is a way to access that equity to pay off higher-interest debt, pay for a wedding, make home improvements, or focus on retirement. In this scenario you refinance your existing mortgage into a new one for a larger amount and pocket the difference, less any closing costs. Keep in mind that with this option you will be taking on a new loan with new terms which could extend the length of your mortgage. However, the flexibility of a cash-out refinance’s lump sum lets you choose how you want to utilize your money. 


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#3: Buy a House, Second Home, or Vacation Home

If you have been putting off buying your dream home, it might be time to turn that goal into reality. Homebuyers still have a tremendous opportunity to lock in extremely low-interest rates and get a house that would have been out of reach if rates increase to historic averages. The current low-rate environment applies to the timing to purchase a second home. A vacation can provide your very own getaway spot for holidays or to escape extremes of heat or cold during winter or summer. The best part may be that reservations are never required. Low mortgage rates are making fulfilling the dream of owning a second or vacation home more affordable so it might be a good time to make it happen.

 

#4: Home Equity Line of Credit (HELOC)

Another way to cover all or part of the purchase of a second home is with a HELOC (home equity line of credit). This is also a nice option if you want to move without selling your home, need cash for home improvement projects, or want to consolidate high-interest debt. The difference between a cash-out refinance and a HELOC is that the former pays off an existing first mortgage while the latter is typically taken out in addition to your first mortgage. A HELOC is considered a second mortgage and will have its own term and repayment schedule. This type of credit line might make sense if you want delay payment and draw from the loan amount as needed over the course of ten years. In many cases, once the loan repayment begins you will have twenty years to repay any outstanding balance.

 

#5: Shorten Your Term

Shortening your loan term – such as refinancing from a 30-year to a 15-year fixed – is another great benefit of refinancing while rates are still near historic lows. This move makes sense if you want to take advantage of the current low-rate environment to pay off your mortgage quicker. The idea is to use today’s lower rates to help offset the increase in your monthly payment amount. Refinancing to a shorter term is particularly effective if you have a low debt-to-income ratio and enough income each month to comfortably cover your bills.

Trying to predict future mortgage rates is no easy task. History has demonstrated that rates may continue to climb higher and return to historic norms. With mortgage rates beginning to rise, many homeowners are choosing not to chance it by locking in today’s rate to potentially free up thousands of dollars.

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