Question by Kate373: Mortgage Finance Experts: How will the market affect homeowners who will be refinancing next year?
My parents bought their home 4 years ago at a 4% rate, which is due to change next year when their loan rate. With the market crunch and the new strict lending that’s bound to occur as a result of this, they are worried about what refinancing has in store for them. The good news is that they have flawless credit (they successfully removed their PMI, and they are early every month on their mortgage payments —and they pay an extra couple of hundred dollars than they should. Not to mention their credit card debt is very low (only a couple of thousand dollars). They’ve both been at their great paying jobs for over a decade; but they are still worried about whether they will be able to secure a decent fixed rate when their mandatory refinance is up. Any hope?
Answer by loancareer
The biggest impact on our market is the following:
1. – There is no longer any subprime lending
2. – Jumbo loan rates have been rising disproportionate to the rest of the market
3. – The ALT-A market has all but vanished
4. – FHA Loans have become increasingly attractive.
5. – Fannie Mae loans have for the most part remained unaffected.
While I certainly cannot predict what the market will be like a year from now (if I could I wouldn’t be writing loans and training loan officers for a living) I don’t see subprime on the radar for quite some time. Everything else will come around and normalize.
Here’s a point that everyone seems to be missing. For the most part this is a market problem – Given time the market will correct the problem. Not the Senate.
Know better? Leave your own answer in the comments!
Hopefully by next year this nightmare will be over, I say to wait it out and hope for the best but with there credit scores and there job history they should be just fine.. What state are they in? My fiancee owns a mortgage business here in FL. He would love to speak with them further. You can e-mail me at firstname.lastname@example.org
Your parents are positioned to be least affected by the credit tightening that is occurring right now. By paying additional principle over the past 4 years they have reduced a 30 year mortgage down to a 22 years mortgage.
With strong credit, income and debt ratios the rising interest rates should not trouble them much. They ‘should’ have enough equity in the home to be able to refinance at or near the 6.50% rate (Today’s average 30 year fixed) They may want to consider a 15 year fixed as well – slightly better rate (still fixed)
The Fed has made mention that PRIME will liekly REMAIN unchanged at the next meeting, although prime is a short term lending rate, if short term borrowing rates remanined unchanged AGAIN we should not see a significant increase in rates – even though some lenders are no longer available and creit standards are tightening.
If your parents do not have a PrePayment Penalty they may want to watch rates over the next 3-6 months and refinance NOW to lock in a low fixed rate. It is being predicted that in 2008 (mid year) the real estate market will begin top improve in many areas. This could spell RISING rates for consumers. Just have them watch rates
Hope this helps and Good luck
They’ll be fine. The people who are most affected by the credit tightening going on are people who
1. don’t have enough equity
2. don’t make enough money to realisticallycover the mortgage payment
3. have questionable/poor credit histories.
Since your parents don’t fall into either of those three areas, they’ll be able to refinance without any issues.
The big question about interest rates and if they’ll be lower next year or this year is ultimately anyone’s guess. Personally I’d probably refinance into a fixed rate now. Not because i’m positive rates won’t dip in the next year, but more because I know I’ll have to do it anyhow and just want to get it off my mind and stop worrying about it.
No need to worry. Rates are still historically low. Here is a link to a history of the 30 yr fixed rate since 1971. Rates are still in the 6% range. The rate has never adjusted more than 4% in one year. If they end up with 10%, it is better than what was being offered in 1980. If they are worried and are going to keep the home for a while, tell them to refinance right now.