If you are thinking about expanding your life in any way, your home can be an incredible tool. Because second mortgage rates around the United States are at all time lows, many people are taking the money and using it for various positive business and personal needs. Will the market stay like this for the rest of 2016? Here we take a look at why second mortgage rates are so low today and what you can expect moving forward.
Why are second mortgage rates still at all time lows?
Refinancing rates have been extremely low in the years following the housing crisis of 2008. In response to emergency market conditions in that year, the Federal Reserve lowered its interest rates to a near zero factor, allowing banks in turn to lower their mortgage interest rates into the low three percent range for the best borrowers.
Banks began to restrict their loans to only the best borrowers with virtually no risk. Although this exclusion kept many people from getting the money they needed to shore up their financial situation following the 2008 crisis, it did help to stabilize the risk profile of the bank enough to keep interest rates low for the people they chose to work with.
These are the continued mortgage interest rates that we are seeing today. The question that the entire market wants to know is whether the Federal Reserve will continue to keep the interest rate low.
What is the Federal Reserve going to do?
The interest rate that the Federal Reserve sets affects all of the interest rates that private banks give to lenders. Although the Federal Reserve sets its own interest rates, if you ask even the highest official within the institution, he will tell you that he does not know where the rates are going to go.
The rate that the Federal Reserve sets is ostensibly based on market activity, and the institution will not set a higher rate until the market showcases stability. Housing prices have been stable for the past few years, and although housing starts in 2015 across the US were not impressive, they were stable. 2016 has seen much of the same activity. The West led housing sales in March with an increase in seven percent over the previous month. The rest of the nation lost two percent. However, the West did so well that the overall number was at a positive three percent over February for the entire nation.
Even with this positive overall number, the Federal Reserve seems intent on keeping its interest rate at its current level, meaning that banks will be free to keep their mortgage interest rates at the sub four percent rates that they currently are.
Are all second mortgage rates now below four percent?
The benchmark mortgage interest rate is based on a common set of loan terms that borrowers normally choose: the 30 year plan with at least 20 percent down on the property and no mortgage points paid up front. In order to get the best second mortgage rates, these borrowers should also have a great credit profile, including a credit score above 740 and a good history of payments to large asset creditors on financial records. Top borrowers will also need a stable income and a debt to income ratio that is below 30 percent, among many other criteria.
You do not necessarily have to fit into this top echelon of borrowers in order to get a second mortgage that is below four percent:Â Because you are talking about a refinance, the equity that you already have in your home will make a big difference in your interest rate. Your previous financial history with the institution will also play a role.
What is going to happen to second mortgage rates for the rest of 2016?
Fannie Mae and the Mortgage Bankers Association both keep analysts to look at forecasts of interest rates, and they never agree with each other. The Mortgage Bankers Association puts interest rates at over five percent by the end of the year, while Fannie Mae thinks they will be around four percent. The Federal Reserve does not even make its guess public, although they have the biggest card to play in the fiasco.
Regardless of which institution you choose to believe, take note that both of the estimates are above where they are now. This is the factor that many real estate investors and analysts are taking into account when moving forward. The result should be an uptick in the number of fixed rate refinances that occur in the market moving forward, a move that will actually cause the numbers above to occur.
What should my next move be?
Whether you are using the equity in your home to go back to school or you are refinancing as a strategy to lock in a lower rate, take advantage of your best moves now. The future is uncertain no matter who you ask, and now is the time to create a long term financial strategy for yourself using your real estate as leverage.
2 Point Highlight
Although this exclusion kept many people from getting the money they needed to shore up their financial situation following the 2008 crisis, it did help to stabilize the risk profile of the bank enough to keep interest rates low for the people they chose to work with.
You do not necessarily have to fit into this top echelon of borrowers in order to get a second mortgage that is below four percent:Â Because you are talking about a refinance, the equity that you already have in your home will make a big difference in your interest rate.
