Our last few articles have been on the impact that the oncoming rise in interest rates from the Federal Reserve will have on the general public, and more specifically how it will impact those who are in the market for purchasing and refinancing. Janet Yellen has openly stated that a change from the Fed is coming soon due to the growth in our economy. We’ve mentioned both the pros and the cons of an interest rate hike, but lately we’ve been noticing more pros for our borrowers than cons.
One positive impact that this rise in interest rates can have on our current and potential borrowers is the opportunity to free themselves from Mortgage Insurance Premiums. Your Mortgage Insurance Premium is the price that you pay monthly as a part of your mortgage payment that goes into an account to protect your lender if you fall on hard times and happen to default on your loan. A Mortgage Insurance Premium or MIP for short, is usually only required for borrowers who can’t afford to put down 20% of their loan amount when applying for their mortgage loan. Up until January 2013, borrowers were able to cancel their MIP coverage once they had made enough payments and had 20% equity in their home. Now that policies have changed, borrowers no longer have the option of cancelling the MIP on their loan when they reach 20% equity.
However, being the mortgage monsters that we are here at Valley West Mortgage, we’ve recognized a way that borrowers can still break away from the bondage of MIP. With a refinance into a Conventional loan where the requirements are somewhat different than an FHA loan, borrowers can drop their MIP payment (provided they meet the aforementioned requirements).
Borrowers who used the FHA program to purchase their home who have been making regular mortgage payments have been building up equity since the day they made the first payment. Couple that with the fact that the average prices of homes around the United States has gone up in the last 2-3 years and just like that, we’ve found another reason for you to refinance into a Conventional loan. Having equity or monetary value in your home means that you can apply for a Cash-Out refinance. Thinking of going on a vacation? Have a kid going to college? Or maybe you just want to do some home improvement? A Cash Out Refinance would give you the opportunity to refinance your old loan into a new one and get cash back for some of the value that your home holds.
In 2016 about 8% of all the refinances processed were for borrowers who were switching from an FHA loan program to a Conventional loan program. That calculates to about 20,000 of those refinances per month in 2016. With the growth of our economy, it is estimated that the prices of homes will go up by about 5% (according to data found by CoreLogic). Considering the fact that over 2 million borrowers purchased homes using the FHA program in recent years, there is no doubt going to be a large wave of refinances coming from borrowers who wish to refinance in 2017.
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WHITNEY RUSH, VALLEY WEST MORTGAGE