May 3, 2021 - Federal Hill Mortgage

What is Refinancing Anyway?

Put simply, refinancing is the process of obtaining a new mortgage to score better rates, or have access to additional cash, among other things. There are several distinct types of refinacing you should be aware of, including:

Cash Out Home Equity

This allows you to extract equity from your home if you need cash. Common reasons this option is used include making renovations or repairs to a house, helping fund a business venture, or paying off high-interest debts.

Change Loan Duration

Commonly, refinancing is used to change a loan duration. Monthly payments can be increased to pay off the loan faster, or reduced to get a lower rate but add more time to the mortgage term.

Changing Interest Rate

Your financial situation may have improved from when you first acquired your loan, or perhaps the market now has more favorable rates on offer. Many homeowners refinance to lower their interest rate and save money over the remaining duration of the loan.

What Are the Advantages of Refinancing Your Home In Maryland?

If you’re considering refinancing, what are the advantages you should know? Refinacing primarily appeals to those who are in a more stable financial position than when they first acquired their home loan. If your credit score has risen and you make more money, you can utilize refinancing as a method of lowering your overall interest payments. Whille a decrease by 2 or 3 percent may not sound huge, it can mean tens of thousands of dollars saved in the long run.

For others, refinancing is used as a method to leverage another investment. As we mentioned previously, cash out home equity refinancing is popular with those who are seeking to invest in business ventures. A home equity line of credit is also often used to make improvements to homes via substantial renovations and extensions. Not only can this make your home more livable, it can also raise the property value if you are eventually looking to sell. Refinancing is a strong option for those looking to restructure loans to reduce payments or to make an investment in their business or home via a home equity line of credit. However, there refinancing may not be the best option for every homeowner.

When to Not Refinance

While refinancing has some distinct advantages, there are a few reasons you should not use to refinance. One is consolidating debt. While debt consolidation can be a smart financial choice for certain kinds of debt, bundling credit card, student loan, or car loan debt into your home loan can mean that your home is now collateral for all of those payments. You don’t want a missed student loan payment to result in the forclosure of your home. A second reason is to not refinance is if you are seeking a home equity line of credit for frivolous spending. Tying yourself down to a new mortgage period so you can finance a vacation can be a financially detrimental choice in the long run. Lastly, it’s not a good idea to refinance if the rate you’re acquiring is only marginally lower than your current rate. You don’t want to add more years onto your mortgage term for a rate that won’t actually save you a substantial amount of money in the long run.

With 2021 underway, many of us are hoping that the volatility of the previous year will begin to even out. The pandemic not only created a dire public health crisis but threw many industries into chaos, including construction, and real estate. What many experts didn’t predict was a run on home buying, fueled by record-low mortgage rates. With stability expected to return, what can we expect about Baltimore mortgage rates to round out the remainder of 2021?

The Current State of Things

December and January of 2020 saw record-low mortgage rates. Data released in early December by Freddie Mac found that the most popular mortgage option, 30-year fixed-rate loans, had fallen as low as a 2.71% average. This was the lowest number recorded by the mortgage-titan since they began tracking rates in 1973. A year prior in December 2019, that rate was a 3.68% average. Since the outset of the new year, rates have risen slightly, up to 2.875% as of April 27th. However, even this slight increase still represents a standstill near historic lows, leading to a cascading effect in other industries such as lumber production as home builders struggle to get the materials they need to keep up with demand. There are a variety of factors that have gone into producing the current situation, many driven by the COVID-19 pandemic. The Federal Reserve’s effort to reinvigorate the economy led to their purchasing of mortgage-backed securities, or MBS. This is a method of bundling 30-year loans with other loans and offering the packages to investors. As noted by The Washington Post, “Interest rates for loans are usually based on MBS prices. When MBS prices go up, secondary market prices go down. The Fed’s unlimited MBS buying has been pushing prices up and driving down rates.” Low mortgage rates have led to a binge of home buying, creating a seller’s market and skyrocketing home prices across the country.

Where Do Baltimore Mortgage Rates Go From Here?

The lingering question on most of our minds is surely, where do the mortgage rates go from here? The truth is, there is uncertainty right now. However, the best bet from many industry economists is a return to a healthy housing market that is not tipped towards either extreme of the mortgage-rate spectrum. Because, while low rates may seem to be ideal to you as a homebuyer, you have to be prepared for steep competition. Low rates have caused prices to soar across the country. The simple fact is, supply is limited at a time when demand is huge. Across the country, from Philadelphia to Charlotte to Utah, reports continue to emerge about competitive housing markets, buyers attempting to outbid each other far above asking prices, and more demand-driven issues. These issues are no different in the Baltimore and DC areas.

So, we can see how historically low mortgage rates can actually disadvantage the average homebuyer who isn’t interested in outbidding tens of others to get the home of their dreams or being forced to settle for a subpar option when they could afford something better in a more stable market. The fear many have right now is that the market may be approaching another crash. However, experts don’t predict that to be the scenario, and instead, foresee a stable market on the horizon. Business Insider spoke to one expert who named several key reasons. First, construction is set to catch up to demand. Currently, limited demand means high home costs and unpredictable mortgage rates, but once homebuilders catch up, the market should even out. Another important aspect is that mortgage rates should eventually even out. The low rates we’ve discussed previously should rise steadily, which means the market will be more easy-to-navigate for well-qualified homebuyers.

What Does This All Mean for Me?

It is true that Baltimore mortgage rates are historically low right now. However, these mortgage rates have contributed to, and been a product of, an unpredictable real estate market that can create difficulties for some buyers. However, getting the home of your dreams right now isn’t an impossibility. You just need a qualified team of experts in your corner to help you navigate the process. The team at Federal Hill Mortgage are the top-ranked mortgage brokers and lenders in Maryland. By coming prepared and shopping smart with pre-approval, you can help tip the scales to purchase the home of your dreams right now.

If you’re ready to get started, apply now.