Still Looking to Refinance? Better Act Fast

In terms of refinancing, 2014 was pretty close to a dream, with rates hovering in the vicinity of 4%.

But even though this year is coming to a close, there’s still good news: Even if you haven’t refinanced yet, you haven’t missed the boat.

Rates are still low and buyers can lock in some great refinance rates, but it’s smarter to act sooner rather than later.

Low Interest Rates Won’t Last

“It’s a very unusual time,” said Lawrence Yun, chief economist and vice president of research at the National Association of REALTORS®. “It’s good for home buyers and people who want to refinance, but it can’t remain like this.”

Certain factors that drove down interest rates—like the Fed artificially lowering rates to stimulate the housing market—are no longer in effect. The improving job market and strengthening economy, on the other hand, will contribute to higher consumer prices and an increase in inflation.

In turn, these factors will lead to higher interest rates, according to Yun.

A “Bouncy” Ride Ahead

That doesn’t mean you have to run out right now before rates skyrocket: Yun predicts that by December 2015, rates will be at about 5%.

However, it won’t be a neat, gradual ascent. Instead, rates will climb and fall over time.

“It won’t go from 4.1, to 4.2, to 4.3 [each week],” Yun noted. “It will be bouncy.”

Consumers will see the increase as soon as the first quarter of 2015, where rates are predicted to rise to about 4.4% for 30-year fixed-rate mortgages, according to NAR’s 2015 economic forecast. Mortgage rates for the rest of 2015 are predicted as follows:

• Second quarter: 4.7%
• Third quarter: 5.1%
• Fourth quarter: 5.4%

How to Lock In Low Refinance Rates

Of course, you still want to get the best deal, so what if rates drop during your lock-in period?

If this happens, ask your lender what renegotiation options are available. In some instances, the lender will allow you take the lower rate or a portion (usually half) of the rate drop for a fee.

Similarly, if your refinance takes longer than expected and your lock-in rate expires, you may be able to purchase an extended lock-in period, also for a fee. This fee is usually a small percentage of the loan and often—but not always—increases with the extra amount of time you need.

For example, if you need an extra 15 days, you may only be charged an eighth of a point. If you require an extra 30 days, you could be looking at a quarter of a point or more—depending on your lender’s policies.

Every situation is different, so it may or may not be worth it to take on those additional costs.

“It’s up to the consumer, ” Yun said. “shop around and get quotes—it’s a very competitive industry out there. See which one makes the most sense.”

Mortgage Rates to Keep Climbing

Whether you’re looking to refinance for better mortgage rates or to ditch that private mortgage insurance (PMI) from your Federal Housing Authority (FHA) loan, refinancing within the next few months could be the last time consumers will see such low interest rates for a while.

According to NAR’s forecast, rates will continue to climb, hitting 5.9% in quarter two of 2016, which is as far as the quarterly forecast goes.

In other words, these rates will soon be a distant memory.

“My overall assessment: It’s better to refinance sooner rather than later,” Yun said.

By: Craig Donofrio