August 3rd, 2014 1:12 PM by Joan Rusco
Is this a good time to buy a home with mortgage rates at very, very low rates? Should I refinance my current mortgage with a V.A. loan? How much lower does the rate have to be to refinance?
These are some of the questions we at VALoansMN get from Veterans almost every day. We have answers and here are some of the facts on which we base our answers to your questions.
First, this is a great time to buy a home because rates are so low. Yes, we hear about how rates are going up and in fact during the last half of last year they did go up. But they came back down. In fact, average rates today are lower than they were one year ago.
Second, concerning whether or not you can lower your rate enough for it to be worthwhile to refinance your current loan with a V.A. loan from VALoansMN: the definitive answer is-maybe. This is a very individual decision. There was a time when pundits would say the rate has to be a half a percent lower than your current mortgage to make it worthwhile. After all, it does cost money to take out a mortgage (any company that says getting a new mortgage is cost-free is not being truthful). We encourage clients to call us (this is cost-free!) and we’ll sort out your specific information, give you details, and then let you make the decision.
Finally, and here’s the 64-thousand-dollar-question, are V.A. loan rates going up? There is a strong argument that when the Federal Reserve stops buying mortgage backed securities (they’ve been winding down this program that began in 2008) that rates may go up. Mortgage rates are a function of supply and demand. Not demand for mortgages but demand for the securities backed by mortgages. These securities are bought and sold like stocks or other bonds. When the FED stops buying these securities there will be a drop in demand. When demand goes down prices go down. When the price drops rates go up. Rates increase to attract mortgage bond buyers back to the market. That may or may not happen.
Maybe, just maybe, we’ll see a long awaited correction in the stock market. In 2008 the market dropped 3,000 points. When that happened stock investors ran to the bond market. The demand for bonds went way, way up and so did bond prices. Since the demand for bonds was high there was no need to pay high interest rates to attract buyers. Interest rates declined. But that wasn’t happening in the mortgage bond market. Buyers were gun-shy thanks to the collapse of the housing market. Bond investors didn’t trust mortgage backed bonds. It may be different today.
The housing market is improving. It’s a slow and slight improvement but it is improvement. If we see a correction in the stock market (just last week as of this writing it was down over 2%) we may see stock investors run to the bond market. There is evidence investors may have more confidence in the rebounding housing market. These investors may turn to mortgage backed securities unlike 2008. If this were to happen there would be upward pressure on mortgage security prices and downward pressure on mortgage rates.
Here’s your bottom line; rates are extremely low right now. If you’re unsure whether or not to refinance just give us a call and let us come up with your numbers. Then you decide whether or not to move forward. If you are thinking of becoming a homeowner mortgage rates are extremely attractive. You can buy more house now because your payment will be lower. If rates go up it cuts into your purchase power.
We watch mortgage rates every day, all day. We at VALoansMN are here to serve you. We are here for Veterans and your families.