If you've been thinking of refinancing, mortgage experts say now is the time to take action.
Improving economic conditions, potential rate increases, and expected changes to government programs means you may soon find it more difficult and expensive to refinance your mortgage.
"People who are still waiting to refinance will realize that rates might never be this low again in our lifetime," says David Lazowski, branch manager at Fairway Independent Mortgage in Boston, MA.
Still not convinced? Read on to learn why mortgage experts say you should refinance before spring arrives.
Reason 1 - Changes to Mortgage Insurance Premiums (MIP)
Is your mortgage more than 80 percent of your home's value? If so, upcoming changes by the U.S. Department of Housing and Urban Development could increase your refinancing costs if you wait to refinance.
In fact, effective April 1, 2013, the Federal Housing Authority's (FHA) mortgage insurance premiums are set to increase.
Currently, lenders require mortgages greater than 80 percent of the home value to be covered by mortgage insurance, and the homeowner pays the premium cost.
Richard Booth, a certified mortgage banker, explains how the increased premiums affect homeowners:
Borrowers with less than 20 percent equity will pay more, he says, impacting their budgets and ability to borrow funds. "The result will be higher monthly costs and thus borrowers will have their borrowing capacity reduced," Booth adds.
But that's not all: "Included in the many changes is the removal of the provision which permitted borrowers to drop their MIP once they reached a 78 percent Loan-to-Value (LTV), and the five year threshold," says Booth. This means that "many will be required to carry MIP for the life of the loan."
Reason 2 - Home Affordable Refinance Program (HARP) May Be Ending
If you qualify for a HARP refinance but haven't taken advantage of it yet, you may soon be out of luck. Our experts believe the HARP programs may be discontinued.
"The Home Affordable Refinance Program, designed to help homeowners who have lost value in their homes refinance into lower rates, has been rumored to be coming to an end," advises Booth.
Wade Lovell, a California mortgage broker, agrees that if you feel you are a candidate for a HARP refinance, don't wait to give it a shot.
"HARP 2.0 and other programs make it possible to refinance even if you are underwater by as much as 25 percent and some lenders will go even higher," Lovell says. "Without these programs, homeowners whose houses are now worth less than they owe would be unable to refinance their primary residences. These programs may be short term. Take advantage of them now."
Reason 3 - Benefits to Refinancing During Tax Season
This may come as a bit of surprise, but yes, there are some perks to refinancing during the tax season.
"One benefit of refinancing during tax season is that you will need many of the same documents needed to file your taxes," says Lazowski. "So while in the mind set of doing taxes, it makes good sense to get into the mind set of refinancing."
If you wait until after tax season to refinance, however, you may be in some trouble. For example, if you have a rate lock or guaranteed mortgage rate for a specified period of time, you may have to wait longer for the verification of your paid income tax, which is often required in a mortgage refinance application.
"After April 15th it will take you longer to get an IRS verification of your taxes being filed through a third party because of everyone filing their taxes on the due date," explains Lazowski. As a result, "This backs up the process and can take four to six additional weeks, causing rate locks to be tested."
Reason 4 - Impending Rate Increase
How would you feel if you discovered your decision to delay refinancing cost your family thousands of dollars in interest?
If rates rise, you could face just that situation. And unfortunately, you could be facing this dilemma sooner rather than later. In fact, according to Freddie Mac's "Weekly Primary Mortgage Market Survey," the interest rate for a 30-year fixed rate mortgage is already on the rise from 3.34 percent on January 3 to 3.56 percent on February 21.
It is data like this that is leading experts to anticipate a continued rate increase.
"Rates have started to move off of all time lows," Lazowski says. "With the economy improving it will come as no surprise that rates will move a bit higher. With that being said, rates moving a bit higher will help to spur both purchase and continued refinance activity."