Returning from Record 2012 Mortgage Rate Highs & Lows

The 2012 Mortgage Rate Highs & Lows Set Records for Being So Low, But Their Rebound Will Change Your Math and Influence Your Mortgage Decisions in a Few Ways.

2012 Mortgage Rate Highs & Lows

By the middle of 2013, the record-setting 2012 mortgage rate highs and lows had already begun to wane. They had reached the lowest levels in year, setting a new benchmark for the best 15-year and 30-year-fixed-rate mortgage rates possible in October and November of 2012, with the 30-year FRM rates nearing 3%, and these remarkable rates continued through early 2013. But by May, they began to rebound, approaching 4%, leaving potential home buyers wondering how they could take advantage of these fleeting low rates and what the right move is. If you’re in the position where you are considering buying a home or making another home-loan decision and want to know if this rebound should change your decision process, consider the following.

The simple fact is that it’s too late to lock in a fixed-rate mortgage at those historic lows. That opportunity disappeared with the first storms of Spring. But even 4% is historically quite low, and indicates that you could get a great interest rate on whatever type of loan you want. So the simplest advice is that if you are considering taking out a home loan and aren’t a pro with the energy and skills to monitor minor market volatility that you’d need to eke out a slightly better rate, hurry up. In other words, look at your options, get yourself ready, and as long as the loan you’re considering compares favorably to long term trends and predicted rates for early 2014, now is a great time to take that loan. This is especially true for fixed-rate mortgages.

That’s the second piece of advice you should recognize. When rates are at record lows or rebounding up from them, getting a fixed-rate mortgage is generally a great idea. Experts say that younger couples who anticipate a growing family, shifting home needs, and better future incomes shouldn’t prioritize a fixed-rate mortgage too highly because they will appreciate the flexibility now and be able to cover the higher costs in the future with higher earning potential. However, this logic isn’t as sound in unique times like when mortgage rates are still recovering from record-setting lows like the 2012 mortgage rate lows. There’s an argument to be made that you’ll save so much in the future with an FRM that it’s worth taking the hit and paying more interest now than you would with an adjustable-rate mortgage (ARM). This is especially true if you can find a way to finance a home that gives you room to grow.

On the other hand, low FRM rates also lead to even lower ARM rates as well. If you’re confident that the home you want to buy now will sell well in a few years when you’re ready to leave it, you may want to gamble on the benefits of lower payments now and get into an ARM. Assuming the housing market recovers and you can get a good price for your home to help pay off the remainder of the mortgage, you can come out benefitting from some of that equity, with larger savings because you made smaller payments, and in a great position to leverage that financial strength and your improved earning power. The main point is that other things being equal, the easiest way to take advantage of the after-effects from the record lows in 2012 is to get a home now.

Refinancing can also allow you to take advantage of these rates before they climb too high. If you already have a home and a mortgage, and especially if your rate is based off of higher rates that existed in 2011 or even before the crash, refinancing can allow you to negotiate a lower rate to decrease your monthly payments without changing the terms of your loan. Or you can do a cash-out refinancing to get a “new” loan if you want to renovate your property or make some other investment. In either case, the lower rates that continue to prevail make access to financing very affordable. However, the operative detail is that rates are rising, so refinancing decisions should take that into account. If you move from a high FRM to a currently low ARM, you may face those same higher rates in a year or two, and potential higher over the lifetime of your loan, for example.

One final thing to remember is that the forces leading to this rise in rates are complex. You can look to two or three major factors to get a better idea of what decision to make and how you can take advantage of this fleeting opportunity. First, the Federal Reserve Bank was aggressively purchasing mortgage-backed securities in 2012, and has continued to do so in 2013. However, it announced that it would be scaling that program back while continuing it through the rest of the year and into the near future. The fewer of these securities that the Fed buys and that they market expected it to buy, the higher loan rates go. Second, the economy and the housing market are both getting better, the latter being in part a result of the former.

This might give you some information about the future value of a home if you do opt to buy using a home loan now, and can help you predict your future ability to service mortgage payments. Combining all this information and these ideas about the best ways to take advantage of record-setting 2012 mortgage rate highs and lows, hopefully you can find a way to make your first home dream a reality or at least save some money.