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Are the historically-low mortgage interest rates causing you to question when – or if – you should refinance?

Unfortunately, the answer to if you should refinance isn’t so black and white.

“In today’s world with upside-down houses, and values regressing as opposed to progressing, you don’t have that automatic sense of yes it makes sense right now to [refinance] or not,” says Brian Dunn, owner of Coastal Realty Services in the South Shore area of Boston.

However, if you’re on the fence about refinancing, there are reasons that indicate you should refinance before the summer approaches…

Your Home Value is Likely to Decrease in the Summer

If you’re thinking about refinancing, you may want to do it before the summer months – when the real estate market is at its peak and as a result, your home value is likely to decrease.

“In the summertime, there’s going to be more homes on the market, and since there are more homes on the market, usually the values drop a little bit because of the fact that there are just more homes for sale,” says Cezar Mansour, president of Beach Lending in Redondo Beach, Calif.

And if your home value drops, then refinancing could hurt you instead of help.

That’s because a decrease in home value means you’ll have less equity in your home when you go to refinance – which can affect the interest rate you receive, says Mansour.

For example, let’s say you bought a home for $400,000 and paid down your mortgage so you now owe $300,000. That means you have 25 percent equity in your home. Let’s say after the appraisal (which is standard during a refinance), you find out your home value has dropped to $380,000. Your equity has now dropped down to about 21 percent, which means that your loan-to-value ratio has also dropped – a big factor in calculating your mortgage interest rate.

So the time to refinance is now – before home prices start to change.

The Government May Stop Influencing Interest Rates and Backing Programs

In December 2012, the U.S. government announced that it would continue purchasing billions of dollars in mortgage-backed securities as part of an effort to stimulate the economy. By doing this, the government is essentially creating new money to buy loans from banks – and as a result, artificially suppressing interest rates. But this won’t last forever.

“At some point the government is going to be peeling back its money-pumping programs, and that’s just going to cause rates to climb,” says Paul Needels, senior vice president of lending products division at Informa Research Services, a leading financial industry information provider.

But aside from the risk of higher interest rates, another concern is the ending of government-sponsored programs that assist homeowners who are struggling financially. This includes programs like the FHA Streamline Refinance, which helps homeowners who have an FHA-insured loan refinance regardless of home value or equity.

“If you’re underwater in your home, the government-sponsored refinance programs are kind of unparalleled, and you need to take advantage of those if you qualify because there’s no assurance of how long those are going to continue,” Needels says. “The ability to refinance your home with no equity is pretty unprecedented…that’s money in the bank.”

You Could be Affected by New Escrow Account Rules

If your credit isn’t stellar, but you think you could still score a lower interest rate than what you currently have, you might want to refinance before June 1st rolls around. Otherwise, you might have to cough up some big bucks upfront.

That’s because having a low credit score is one factor that could make you a high-risk borrower, and when it comes to a mortgage, being “high-risk” could mean that you qualify only for what’s called a “subprime loan.” These loans have higher-than-usual interest rates to compensate for the risk of a low-credit score borrower defaulting on the loan.

But higher rates aren’t the only punishment for being a high-risk borrower.

In fact, the government currently mandates that property tax and home insurance payments be held in an escrow account for one year for most subprime-mortgage loans. However, on June 1, 2013, homeowners with subprime loans will be required to put five years of property tax and homeowner’s insurance costs in an escrow account with their lender, according to the Truth in Lending Act (also known as “Regulation Z”) from Consumer Financial Protection Bureau.

So if you have a subprime loan and you’re looking to refinance, you might have to come up with more cold, hard cash come June 1, according to Mansour.

Lowering Your Interest Rate by Less Than 1 Percent Can Make a Difference

Low interest rates, which were at an average of 3.67 percent as of April 12, according to the Mortgage Bankers Association (MBA), aren’t going to stick around for long. In fact, the MBA predicts that interest rates will reach 4.2 percent for 30-year fixed-rate mortgages by the third quarter of 2013 – and will continue to rise steadily.

If you wait to refinance and rates go up even as little as 0.539 percent (the difference between the April 12 rate and what it’s predicted to be by the end of the third-quarter), it could make a big difference in what you’re shelling out both monthly and over the life of the loan.

“If you’re a half-point above the market, realistically, it probably makes sense for you to be refinancing,” Dunn says.

For example, let’s say you have a $300,000, 30-year fixed-rate mortgage, and you’re unsure about refinancing now or waiting a few months. If you waited to refinance and interest rates did go up to 4.2 percent, here’s what the numbers would look like with a 3.67 percent interest rate, and a 4.2 percent interest rate, respectively:

So even though 0.53 percent may seem insignificant, it can really make a big difference in your wallet – $91.29 monthly, and over $30,000 in interest over the next 30 years.

While you may have become used to seeing mortgage interest rates at or below 4 percent, the age of historically-low rates may be coming to an end.

In fact, the Mortgage Bankers Association (MBA), the national association representing the real estate finance industry, predicts 30-year mortgage rates to rise to 4.4 percent by the end of 2013.

So, how solid are the MBA’s rate predictions? We asked our panel of mortgage experts for their opinion on where mortgage rates are headed, and what it means for homeowners and potential home buyers. Keep reading to see what they had to say…

Higher-Rate Predictions in 2013 are Tied to the Government

So just why does the MBA expect mortgage rates to increase in 2013? As our expert panel explains, it’s all about the economy.

“Most economists, along with the MBA, are predicting higher rates into the later part of 2013,” says Amy Tierce, regional vice president at Fairway Independent Mortgage Corporation in Needham, MA. Tierce believes these predictions come from improved economic conditions, including the housing market.

Joe Caltabiano, senior vice president of mortgage lending at Guaranteed Rate mortgages in Chicago, agrees.

“Historically, the mortgage rates shift with the economy,” says Caltabiano. “Because of an influx of improving economic data – more jobs created, lower unemployment, and a housing market showing signs of recovery – we expect to see rates increase.”

Additionally, experts expect changes to the government’s involvement in a program that has been helping keep rates low – The Agency Mortgage-Backed Securities Purchase Program. The program was developed by the Federal Reserve, the United States’ central bank, to respond to the 2008 financial crisis.

In September 2012, the Federal Reserve announced that it would buy $40 billion of agency mortgage-backed securities each month until the economy started to show signs of improvement, according to the Mortgage Bankers Association. This has helped keep interest rates low over the past few years. But, as our experts explain, the improving economic conditions mean the Fed’s involvement will decrease – driving rates up.

“A large factor in the MBA predicting higher interest rates is that the Federal Reserve will eventually stop purchasing mortgage-backed securities,” says Irene Moustakas, a California mortgage broker with Granite Financial. “Considering that interest rates recently increased when the Fed merely suggested that it would stop its program at some point in the coming months, the actual implementation of the program cancellation will definitely result in increased rates on a longer-term scale,” she says.

Effects of Rate Increases on Home Buying or Refinancing

So how will this phenomenon affect home buyers and homeowners? Our experts expect that a rate increase will prompt people thinking about buying or refinancing to act now instead of waiting.

“If a homeowner wants to refinance, do it now,” advises Tierce. “Homebuyers considering a purchase this year should get with a lender today and get thoroughly pre-approved.”

According to Moustakas, the danger of waiting to make your decision is that depending on your income, a higher rate may affect your ability to qualify for a mortgage.

“A higher interest rate can vastly affect your monthly payment, thus reducing your purchase power as a home buyer, and your monthly payment savings if you’re seeking a refinance at a reduced rate,” she says.

For example, “The monthly principal and interest payment for a $400,000 loan amount at 3.5 percent is $1,796.18,” explains Moustakas. However, if you decide to wait until the end of the year – and the MBA’s rate predictions are true – the “same loan amount at 4.4 percent will be $2,003.04 – over $200 [per] month that you are paying just in interest.”

Our Experts’ Rate Predictions

Overall, our mortgage panel agrees with the MBA’s prediction that mortgage rates will rise by the end of 2013.

Caltabiano: “It’s pretty much impossible to predict where rates will go in the long term, but in the short term, assuming the economy continues to improve, rates will likely increase.”

Tierce: Rates could fluctuate depending on consumer behavior. “If rates go up, we may see buyers backing out of the market again and the Fed forced to bring rates back down, Tierce explains. “Therefore, we could see rates rise only to be pushed back down again by market forces.”

Moustakas: The MBA’s prediction of a rate around 4.4 percent for 30 year mortgages at the end of 2013 is spot on. “I am no economist, but the longer-term trend does seem to show that 30-year fixed interest rates will head towards the low to mid-4s,” she says. “At this point, it feels like we have been on such a long ride of low rates that they are bound to increase. The good news is that, in the scheme of it all, [a low to mid-4 interest rate] is still a pretty amazing interest rate range.”

Article courtesy of http://homes.yahoo.com/news/rates-rising-2013-021828876.html

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Mortgage rates for 30-year fixed mortgages fell this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace at 3.37 percent, down from 3.4 percent at this same time last week.

The 30-year fixed mortgage rate remained fairly flat during the week, hovering between 3.4 and 3.35 percent before dropping to the current rate this morning.

“Rates dropped slightly last week as eurozone concerns offset strong domestic economic data,” said Erin Lantz, director of Zillow Mortgage Marketplace. “We anticipate rates to remain fairly flat this week, unless employment data comes out much stronger than expected.”

Additionally, the 15-year fixed mortgage rate this morning was 2.6 percent, and for 5/1ARMSs, the rate was 2.23 percent.

What are the rates right now? Check Zillow Mortgage Marketplace for up-to-the-minute mortgage rates for your state.

Article courtesty of http://homes.yahoo.com/news/30-fixed-mortgage-rates-continue-slide-second-consecutive-212221589.html

“2012 was the first year since 1997 that the housing market has resembled something [close to] normal,” said David Stiff, Fiserv’s chief economist. “For the past 15 years home price changes and sales volumes have either been boosted by a bubble mentality or crushed by crash psychology.”

From 1998 until the housing bubble peaked in 2006, home prices grew by 5% or more a year. But once the bubble burst, home prices plunged, falling 30.5% through the end of September 2012.

It wasn’t until late 2011 that markets started to stabilize, according to Stiff. Between September 2011 and September 2012, average U.S. home prices rose 3.6%. By then, 62% of the 384 metro areas Fiserv tracks reported rising home prices, up from just 12.5% of all markets during the same period a year earlier.

Many of the metro areas hit hardest by the housing bust recorded the biggest price gains during those 12 months. In Phoenix, for example, prices climbed back by nearly 21%; prices in Detroit rose almost 16%; and homes in San Jose, California, gained 12.5%.

By the end of this year, Fiserv predicts that home prices will be heading higher in almost every metro area it tracks. Medford, Oregon is expected to gain 9.7% in the 12 months through September, the highest of any city. Other big gainers are expected to be Santa Fe, New Mexico up 8.1%, Billings, Montana 5.5% and Syracuse, NY 5%.

Fiserv expects Miami home prices to sustain a 10.7% loss over the same period, the largest drop of any market. Stiff said a steady stream of foreclosures will keep prices soft in the area during that time.

While Stiff said home price gains will be similar to those experienced back in 1997, he noted the similarities stopped there.  Currently, millions of homes are either in foreclosure or on the verge of it.

Otherwise, there are many positive trends in today’s market, he said. Prices are extremely affordable and mortgage rates are at or near historic lows. Overall, Fiserv Case-Shiller expects stronger demand for housing, and the sector should, once again, have a positive impact on the economy.

Article courtesy of http://money.cnn.com/2013/03/05/real_estate/home-prices/index.html?sr=fbmain

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