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Recent reports show median home sale prices at an all-time high while sale inventory remains low, with a national inventory decline of nearly 50% over last year. This seemingly “sellers environment,” coupled with continued low mortgage rates, leaves many Americans wondering if now is a good time to buy or refinance a home.
As of March 18, Freddie Mac’s survey of mortgage lenders found the average 30-year fixed rate was 3.09% and its average 15-year fixed rate was 2.4%.
While not as historically low as summer 2020, rates at these levels make now a great time for buyers to lock in a rate for a new residential mortgage. Of note, some lenders have raised their minimum lending standards due to the economic downturn and extremely high rates of unemployment, making it more difficult for some buyers to qualify. (Generally, lenders look at the purchaser’s ability to make a monthly payment as a percentage of income. Higher interest rates mean purchasers can afford less.) While slowly rising interest rates and home prices may not prove challenging, making a home purchase with minimal inventory is surely an obstacle. Combined, these factors have weakened purchasers’ buyer power.
What if you’re not looking to move? Refinancing can have huge advantages. One of the main reasons homeowners want to take advantage of these lower mortgage rates by refinancing is to lower their monthly payments and reduce expenses. This is not the only benefit of refinancing. Homeowners may also want to refinance to change their rates from an adjustable rate to a fixed rate, eliminate private mortgage insurance (PMI), or shorten the term of their mortgage in order to pay it off sooner and save thousands of dollars in interest.
There are many factors to consider to determine whether refinancing makes sense and will benefit you. These factors include closing costs, loan terms, and how long you plan on staying in your home.
If you plan to stay in your home long enough that the amount you save in interest payments equals the costs of refinancing, then refinancing could be worth it. If you plan on moving before you break even however, this may not benefit you. To determine your break-even point, divide the total closing costs by the amount you save each month with your new payment. For example, if your new mortgage saves you $200 a month and closing costs are $4,000 your break-even point would be 20 months ($4,000/$200).
There are a few reasons to have an attorney when refinancing a mortgage or buying a home.
First, buying a home is likely the biggest transaction people make in their lifetime. Having an attorney help you with this process can be valuable as they represent your interest solely. Realtors, title agents and lenders, while helpful, are not necessarily looking out for you – they are often representing multiple parties or are limited in the advice they can offer regarding the transaction.
Second, attorneys provide legal insights on transaction paperwork. They are able to explain in detail what you are signing and explain the risks and rewards. When you are paying hundreds of thousands of dollars for a house, you deserve to have the deed, note, mortgage, closing disclosure and settlement statement explained to you in detail.
Third, contrary to the belief that having an attorney take part in your real estate transaction will mean larger fees, it may actually save you closing fees. In Pennsylvania, attorneys can also be licensed title insurance agents (seven Gross McGinley attorneys are). Therefore, when the transaction proceeds without problems, you get the advice of a licensed attorney but only pay the title insurance premium, rates which are set by the State and are the same if you go to a lawyer or non-lawyer agent. Further, if problems develop, you are already working with a lawyer who can step in to help resolve disputes or solve problems before they escalate.
If you’re about to to buy a house or refinance a mortgage, know it’s a good time to take advantage of low rates! And please contact our Real Estate team to see if we may be able to assist with your transaction.
Attorneys Safa Ashrafi and Jack Gross practice in Gross McGinley’s Real Estate team. They give counsel to businesses and individuals regarding commercial and residential real estate transactions.