The combination of mortgage interest rates hitting their lowest levels in 20 months and recent rule changes made by the Federal Housing Authority may be the fillip “fence-sitters” need for them to buy a new home or refinance their existing mortgage. This was revealed in a report released this week by analytics firm Fitch Ratings.
At the present, 30-year fixed-rate mortgages have dropped 92 basis points since mid-2013, or the time of the infamous “summer spike” that was spurred on by talk of a U.S. Federal Reserve tapering of economic stimulus. 30-year fixed mortgages are now at 3.66 percent, and with this taken into account, this should be very beneficial to consumers, especially first-time home buyers.
“Conditions are very favorable for first-time home buyers to start getting back into the market,” read a statement from Fitch Ratings director Sean Nelson. “Mortgage rates are falling, FHA insurance premiums are coming down, home prices are cooling and employment is steady.” It is not unusual for first-time home buyers to make use of a FHA-insured mortgage when financing their new property, due to these products’ low down payments.
Aside from the current low rate climate in the U.S. mortgage market, the FHA had also announced a reduction to the rates of its mortgage insurance premiums, changing rates from 1.35 percent to 0.85 percent and theoretically saving consumers about $900 annually, on an average. This is one of the Obama administration’s recent rule changes that is expected to make an impact on the mortgage market for calendar 2015, following last year’s largely mixed results that featured rate decreases tempered by continuing home price appreciation.
With regards to the refinance of existing mortgages, Fitch Ratings believes that consumers planning to refinance can also take advantage of the current state of the U.S. real estate market. Statistics from the MBA and other organizations are the proverbial proof in the pudding, showing that big drops in mortgage rates usually cause a huge increase, or “spike,” in refinance activity. But since mortgage rates were even lower prior to the “summer spike” of 2013, the recent spate of interest rate declines is not expected to have as significant an effect on refinance activity as pre-May 2013 rates did.
It bears mentioning that there may be less borrowers eligible for a refinance, and according to Nelson, there may be certain factors coming into play that could stymie refinance attempts. ‘Those borrowers that did not already take advantage of the historically low interest rates of 2012-2013 may be restricted by credit issues or insufficient home equity,” he said. Even then, there are still opportunities for borrowers to refinance; consumers who were unable to do so in 2012 to 2013 due to their underwater status may be able to refinance this year. Assuming these consumers were able to rebuild equity amid the rapid price increases of 2013 or 2014, 2015 could be the year in which they are able to refinance their homes and make the most out of a good situation.