Mortgage Rates Update

Mortgage rates in the U.S. fell to three-year lows recently, with the average 30-year fixed mortgage pricing at approximately 3.55% at the end of last week.  The 3.55% rate approaches the lowest 30-year residential mortgage rates ever seen in the U.S. housing market, which occurred in 2016. While most economists initially forecasted flat to rising interest rates in 2019, we have witnessed the opposite so far this year—a substantial pullback in longer term interest rates. Opportunity for Refinancing The decline in mortgage rates represents another opportunity for families to lock in long-term financing at near-historically low levels.  If you currently have a 30-year fixed rate mortgage priced at 4% or above, it is likely that you can reduce your housing costs by refinancing to a lower rate. According to a recent mortgage industry study, 9.7 million Americans stood to benefit from refinancing their mortgage with rates at 3.625%, with an average monthly payment savings of $267.  For a large mortgage, the difference in monthly payments could be substantially higher.[1] Though we have currently experienced a decade of below-average inflation in the United States, it has not always been this way.  If we think back to the late 1970’s and early 1980’s, interest rates were in the double digits.  Inflation and stagflation were high and a common part of the American public’s experience. Though we see no signs of imminent inflation coming to the U.S. economy, it does make sense to hedge against potential inflation over the long term, particularly if there is little cost to doing so.  Locking in a 30-year mortgage below 4% today provides a potentially valuable hedge against future inflation, when interest rates—and monthly mortgage payments—may be more costly. The Impact on Cash Flow As part of our comprehensive planning process, we often consider ways to improve cash flow.  Click here to learn more about our Cash Flow Toolkit™. Liability management is an important part of this cash flow planning.  While paying off a mortgage is typically the most impactful way to improve monthly cash flow, reducing your home loan to a much lower interest rate is another option. Even with lower rates, there are situations where it does not make sense to refinance.  The potential closing costs for refinancing can negate the benefit of a lower rate, if you only hold the loan for a short period of time.  If you plan to move or sell your home in the next 3-5 years, it may not make sense to refinance.  Additionally, a family planning to pay off their mortgage in the upcoming years may not wish to add years to the life of their loan. To discuss your personal situation and whether it makes sense to consider refinancing, we welcome the chance to speak about your financial plan. [1]Online at Black Knight.  Page 12.