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It's Encore Time For Thirty Year Mortgages
Many Are Now Choosing to Refinance Their Real Estate Into Thirty-year
Fixed Rate Mortgages At Historically Low Interest Rates
By The Mortgage Guy / MortgageLoanRequest.com
In response to this last year's long running
performance of historically low interest rates, many people are now rushing
to refinance their properties. Their choice of mortgage is that old soft
shoe, and easy to sing along to, 30-year
fixed rate plan. With all the recent song and dance about hybrid and
adjustable rate mortgages, you might be wondering why so many investors
are now humming a different tune. It's really quite simple, it makes good
investment sense and saves them money in the long run.
Savvy home owners who are currently sitting on adjustable
rate mortgages (ARMs), which are scheduled to adjust before the years
end, know that now is the time to refinance.
If they cannot accomplish this soon, their adjusted rates will eventually
be above and beyond the 30-year rates currently being offered by lenders.
With the statistical announcement in the fourth quarter of 2004 regarding
this new shift in mortgage strategy, and again in the first quarter of
this year, it is becoming obvious to people in the lending industry that
a revival of an old property play is about to be this season's smash hit.
During that six month period, the popularity of 30-year fixed rate mortgages
went up 15 percent, causing lenders to debate amongst themselves as to
whether or not this trend will have an encore during the next few quarters
as well. While the 30-year fixed rate's popularity climbed up the chart,
so did the short-term interest rates on a one-year ARM, from 4.14% to
4.21%.
The fact that long-term rates have continued to decline during this same
period, despite the Fed raising short-term rates eight times since mid-2004,
doesn't do much to quell the commotion in the wings. Alan Greenspan, the
soon to be retired Chairman of the Federal Reserve Board, says that this
is all "without precedent". Be that as it may, the one thing
that is now certain is that a great opportunity for refinancing and new
home purchasing has come to town, and a lot of people want to see the
show.
It doesn't matter if it is a refinance, or a new
home purchase, most investors who are shy of risk and want to know
exactly what their monthly mortgage exposure is, will now be inclined
to opt for the certainty of a 30-year fixed rate amortization plan. Arms,
especially hybrids and interest-only
Arms are too volatile for the more prudent investor. The thought of rate
payments ballooning out of control is just not their cup of tea. The early
advantages of the hybrids never seem to offset the potential risks of
rate inflation down the line. In the past, the risks associated with ARMS,
hybrids and IOs offered the willing substantial rewards, so long as all
things went as planned. If the rates were in their favor at adjustment
time, or if the investor got out of their IO before it was time to pay
up the principal, it was a good deal all around. However, now with the
rates the way they are today those same risks do not return the same level
of reward.
Like all loan situations, timing, personal employment and income levels,
coupled with the ability to repay, are what should determine the type
of mortgage plan anyone chooses. For those folks who know that they are
going to stay put for a while and do not see their families growing too
much, the popular 30-year fixed rate mortgage is well suited to their
needs.
The timing is very conducive, and a
30-year fixed rate refinance in this particular economic and property
environment could afford benefits for years to come. Also, locking in
a good rate now doesn't prevent you from refinancing again, if interest
rates further improve. Most people these days only remain in a mortgage
for an average of five years before they either refinance or cash out,
and move on to a bigger house. Keeping an eye on interest rates, property
values and the mood of the market, in addition to continually reassessing
an investment and making confident moves when they are dictated, is what
successful property investing is all about.
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