Finance experts widely believe the Fed will hike interest rates tomorrow; however, most home mortgage experts still predict the housing market will remain strong despite the greater expense consumers will incur to borrow money for a home.
Mike Ouyang, marketing manager at LendingTree.com, says based on Fed Chair Janet Yellen's address in late November, where she mentioned that the economic and labor market gains have met the central bank's goals, it is likely that the Fed will raise rates. Strong jobs numbers and increased homebuyer competition all point to the fact that the Fed will, for the first time since 2008, increase rates.
“The Fed has been pretty conservative about raising rates thus far,” he explains. “If we do see a hike, we expect it will be marginal so there is a gradual move towards normalization over time. Sudden spikes could have a strong negative rebound effect on the economy.”
As of December 8, 2015, the 30-year fixed mortgage rate still hovers below 4% at 3.75% -- historical lows. Potential homeowners are not likely to be deterred from buying if mortgage rates jump to 4.25% or 4.5%.
Bob Walters, chief economist at Quicken Loans agrees that a minor rate hike should not have a negative impact on the housing market. “We’ve seen a number of positive trends in the market,” he says. “Home prices are rising and began rising in earnest a year or two ago. Appraised values are being supported more often now versus when it was a problem in the recent past.”
“The FHA also lowered some insurance factors, creating a favorable environment and a more amenable market for the first time home buyer,” Walters adds. “At the same time the foreclosure and bankruptcy rate is improving. Those who went through a foreclosure or bankruptcy four to six years ago are rebounding. In fact those who may have suffered a foreclosure due to job loss, but have had perfect credit, and are not habitually struggling, are ideal candidates, do very well and get approved.”
Refinance Now or Have You Missed the Boat?
Rates have been submerged under 4% for several years, so should homeowners consider refinancing their mortgage if rates increase?
Ouyang says refinance decisions depend on an individual basis and the homeowner’s current lock-in rate.
“Additionally, homeowners should consider if they plan to stay in their home long enough to realize savings on the refinance,” he says. “Look at the lenders' costs and fees first before committing. A refinance may take a few years to recoup any initial costs and those fees could either lengthen the period before realizing your breakeven point or eat up any savings you would have gained. If you purchased your home ten years ago and haven’t refinanced at all since then, definitely look into a mortgage loan refinance sooner than later as rates are still currently at a historical low.”
Lenders also suggest that borrowers should reach out and ask questions.
“At Wells Fargo, we offer our customers all of the information and options that are available so they may make an informed decision based on their needs and financial goals,” says Joe Rogers, executive vice president at Wells Fargo Home Mortgage. “There could be numerous benefits to refinancing a mortgage, including a reduction in monthly home payments and even a reduction in interest rates.”
Online Mortgage Loan Apps Make it Easy to Start (and Finish) the Process
Quick and easy application processes like Rocket Mortgage from Quicken Loans remove some of the typical hurdles found with mortgage loan application and refinance.
“Online resources are a necessary element for almost all borrowers,” says Walters of Quicken Loans. “Approximately 98% to 99% of all borrowers at least begin the mortgage process online, even if they complete it face to face with their lender. It’s important to have the right tools and information readily available so the process can be started when it is convenient to the borrower.”
Quicken Loan’s Rocket Mortgage product launched only recently, but has taken off with the borrowing public. The application allows for full mortgage approval in eight short minutes using the same criteria and due diligence necessary for an in-person mortgage approval.
“People really gravitate to the control they have with this product,” Walters says. “At 3 a.m. in their pajamas, borrowers can play with interest rates and closing costs scenarios without feeling intimated. At the same time they can certainly transact too.”
Wells Fargo and LendingTree both offer a number of online and interactive resources designed to help borrowers make informed decisions.
“Homeowners should consider the costs to refinance in terms of fees that are involved, the impact refinancing will have on the loan payoff and how refinancing will support overall financial goals,” Rogers says.
So what's the overall game plan?
“Do your research and consider your options,” Ouyang advises. “When looking at refinancing compare the rates and fees of each lender. The APR summarizes your cost of borrowing by calculating the lender’s fees in with the rate. And don’t settle for just one offer and assume it’s the lowest rate you can find.”
Ouyang adds, comparison sites such as LendingTree can provide multiple offers from different banks and lenders depending on your credit score so you can pick the best deal specifically for you. “You can even use those competing offers as leverage for lower rates,” he says.