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Interest rates have increased nearly .75% since November 2017. This has many homeowners wondering if they'll ever refinance again, and many prospective homebuyers wondering how this will affect their purchasing power. Here are several thoughts for both groups of people.....
Regardless of the interest rate market, refinancing has always been around...and always will be. That's because there are many reasons people refinance beyond simply lowering their interest rate. Below are just a few examples.
1. Lower Payment - You actually can improve cash flow without lowering your rate. Some homeowners who have been paying their loan down for years, but find themselves in a cash flow crunch, decide to refinance to a longer term to provide more payment flexibility.
2. Get Out of Adjustable Rate Loan - With rates going up, adjustable loans will be seeing increased rates at their change period. One way to avoid this is to lock in fixed rates now.
3. Get Rid of Mortgage Insurance - Increased home values have opened opportunities for folks to get rid of their monthly mortgage insurance premiums. Even with increased rates, folks can decrease their monthly payment and improve their tax deduction. Contact us to find out more about this strategy.
4. Access Equity - Increased home values have also made it more possible to pull cash out for home improvement or debt consolidation, or any other variety of reasons (beef up reserves, invest elsewhere, etc.).
An increase in rates does not automatically mean home prices will react by plunging. There are many other factors involved with home values such as supply, demand, tax implications, etc.
While rates moving up does decrease purchasing power due to the resulting payment increase, it can still make sense to buy, pending your current life and financial situation. Many find that even with prices seemingly at elevated levels and rates increasing, their payments on a new home purchase may be less than their rent payment, especially once the tax implications are considered.
It's advisable to look at a home purchase decision on an individual basis, because you can never predict what the market is going to do. Many "experts" predicted a decline in home values two years ago. Home values have improved north of 20% in many areas since then. So, if the "experts" can't get it right, the rest of us shouldn't guess either!
Contact us if you have questions about your specific situation regarding refinancing or buying a home. We'd be happy to discuss your life and financial situation, as well as the tax impact of your choices.