Saturday, February 02, 2008

South Bay-Beach Cities: Is Now the Time to Refinance?

Why you need to refinance now if your loan is re-setting soon..

The additional FED rate cut Wednesday may have had some of you thinking home interest rates were set to drop drastically ... sorry but that's probably not going to happen. Long term interest rates are tied to the long term bond market. Right now that market is in a flux. However if you currently have an adjustable or a HELOC then you may see rates drop on your existing loan. The rest of us can expect to see rates remain neutral or maybe increase slightly. Daryl Glade has a terrific post on how mortgages work...Myth:Mortgage Rates Will Plummet in 2008. This is definitely worth a read for the curious.

Dan Green and Lou Barnes offer more clarity on the why and where of mortgage rates. Personally I think unless something dramatic happens to improve the market's pessimistic outlook this could be the best we will see as far as rates go. As noted by Dan Green, it takes a long time for the cuts the FED makes to affect long term mortgage rates. I can't help but wonder if the FED will wind up reversing course about the same time rates drop because by then inflation will be more of a worry then recession.

If you have a jumbo loan you will see rates continue to be higher then conforming rates. This is one of the reasons those of us in California and other high home price areas would like to see the conforming limit raised to finally cover our market. California has been one of the orphan children of the mortgage loan market for as long as I have been in real estate. I can't help but think that most of the reason ALT-A loans exist is because of the refusal of Washington to increase conforming limits in higher priced markets.

If your loan will be resetting sometime in the next 12-18 months I would seriously get the ball moving to obtain a more secure loan. We should know within 2 weeks if conforming loans will increase to $729,000 for our area. If you would are considering an adjustable rate make sure it is fixed for at least 5 years and preferably 7-10 years. Do not even look at anything resembling a loan with negative amortization. It may cost you a half to a full point but it will be cheap at the price.

Even though we are not seeing a huge drop in rates they are still very low. I fully expect to see rates on conforming loans approach 7% in the future if the FED believes that inflation is a major threat to the economy. You can bash CA real estate prices and the last wild run up in values but the fact is that home prices in California have always been higher then in other parts of the country... and those in the Beach Cities look as if they will stay on the high side. I suspect not having to shovel snow has something to do with it....

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