March 12, 2018

Financial Forecast

Temps are on the Rise… And so are Interest Rates!

by Brandon Hansen

Here comes spring! Here comes the Parade of Homes! Here comes the warmer weather! Here comes the Arts festival and spring break. It is arguably the best season to live in our beautiful area—and that is tough to argue with.

But, with all of the excitement of the spring, economy, tax cuts, and housing boom, comes the inevitable rise of interest rates. In the last thirty days, we have seen a dramatic climb in interest rates and the Mortgage Banking Association expects rates to be at 5% by the end of 2018 instead of 4% where we used to be hovering. At the time of this print, the average is up to about 4.25% to 4.375% with a 30 year fixed rate on average, depending on loan amounts, credit, and type of loan.

So, with the spring and excitement, please take the time to look at your long term debt. If you are thinking of buying a home or building a home, this may be the best time to purchase. Certainly rates are on the move, so the cost of money will be higher. If rates go up a full percent, the cost of your average mortgage will go up 10% in payment. So, instead of a $1300 per month mortgage payment, for example, you would have a $1430 per month payment for the same house by the end of this year, according to expected rates.

With the rise of interest rates comes the rise of material cost, which is increasing right along with home values. The same home that might cost you $300,000 today, may be another $30,000 or 10% a year from now, or cost another 10% in price to build a year from now. That is what we have seen in the last year with costs and appreciation.

If you are already in your home, you need to take advantage of the current rates and see if there is a benefit to refinancing now before rates move. For example, if you have outside debt in credit cards, or department store cards or other commercial debt with high interest, you need to consolidate and bring the debt into the mortgage loan so you can pay the loan off faster at lower rates, meanwhile deducting the interest on top of it.

Also, if you have mortgage insurance, now is the time to try and eliminate the mortgage insurance on your home. With rising home values, you want to see if you can eliminate that mortgage insurance. Some loans, including FHA loans, don’t allow you to eliminate the mortgage insurance from the payment in nearly all of their loans, so you would need to refinance the FHA loan into a conventional loan in order to sharpen the pencil on your mortgage and payments.

Finally, whenever you are dealing with mortgages, please watch your closing costs and try and keep the same period of payoff on your loan as your existing payoff. That way, there is really not a down side to refinancing.

If you are over 62 and would like to explore the options of a reverse loan, now is the time. The higher the interest rate climate, the less attractive the loan is to you and your spouse, and the less amount HUD will loan and insure on the home. And, as always, please look at all of your financing options and make sure you are working with a financial planner and mortgage planner to go over pros and cons as well as costs associated with your decisions.

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