This is Thanksgiving week, and in spite of or because of our current housing market, we have much to be thankful for. Not everyone in the world can live in their own home, especially in such a beautiful place. Nevertheless, we need to be vigilant because nothing is ever free.
According to Forbes, as of Nov. 16, the average 30-year home mortgage is 7.83% and the average 15-year home mortgage is 7.06%, down slightly from previous weeks. This may not sound great, but the good news is the rates are going down and are somewhat stable. In addition, the Federal Reserve did not raise rates during its last meeting and has signaled they may be holding steady for a while. The stock market heard this loud and clear and has been improving almost every day.
However, buyers who are actively looking for a new home and a new mortgage still aren’t too happy. To find a way to address the buyer’s reluctance to enter into an 8% mortgage, some lenders are offering programs that include future refinance for free. Of course, lenders are looking to fill the hole left by retreating buyers who cannot bring themselves to sign on for an almost 8% home mortgage and attract new borrowers.
But is this really a good deal for buyers? Nothing in the mortgage industry is free and signing on to what looks like a good deal may bite you down the road. Every lender has its own program with a different set of incentives that can be confusing to even astute buyers.
Usually, lenders will give some borrowers a certificate or another type of IOU that gives them access to a credit that can be used to pay for some of the costs associated with a future refinance. Other lenders may roll the future closing costs into the loan amount or waive lender fees and/or appraisal fees for a future refinance.
The average closing costs for a single-family refinance are approximately $2,500. A lender could offer a credit somewhere between $1,500 and $3,000 for a future refinancing but if the closing costs in the future are less, the difference will not be refunded to you. Also, buy now/refinance later mortgages may have higher initial fees or interest rates or come with time limits.
Since no one knows what the rates will be in the future or what your particular lender will offer down the road, you could be signing up for an unknown. Part of that unknown is whether your credit rating declines or your property value drops and you don’t qualify for a refinance.
It’s always nice to see new ideas that may be available to help buyers, but it might be more beneficial to focus on what you can afford now; don’t assume that the rates will fall in the future and allow you to take advantage of your previous credit.
Refinancing any mortgage is always an option and if interest rates do drop, you’re not tied in to one lender, you can see what the competition is offering at that time. I’m not saying there may not be some great buy now/refinance later programs out there that will be the perfect fit for your finances now, I’m just saying think about the future before you obligate yourself.
Tomorrow be thankful for your family, friends and a bounty of food. Also be thankful for American ingenuity, it makes our country special and offers options for every buyer. Happy Thanksgiving.
