It is 2018, and if you are thinking about buying a home or refinancing, the news is like a year ago. Rates continue to stay low, but they are expected to rise. Experts were saying the same a year ago, but we think it is even more likely this year for rates to go up.
The economy has shown very strong growth in the first year of the Trump administration, and the recent tax code changes should provide an economic bump as well. While these things are good overall for Americans and their bank accounts, strong economic news generally means higher mortgage rates for both new purchases and refinances.
Still, rates as of early 2018 are still fairly steady as the changes from the tax law have not hit yet. If you are in the market for a refinance, you may want to move soon because the Fed is going to raise rates, and mortgage rates will soon follow.
Below is some advice for various types of mortgage program refinances for 2018.
Freddie Mac has tracked mortgage rates since the 1970’s. There have been very few mortgage rate streaks like what we have seen in recent times. Mortgage rates have stayed just below 4% on average for about six months. This does not seem to make a great deal of sense because the stock market is now above 25,000 and the S&P 500 is up 20% from a year ago. This type of strong growth usually increases mortgage rates as investors get out of bonds and go hard into stocks. But high rates have not hit yet.
As of now, rates are holding steady for conventional loans tracked by Freddie Mac, but it probably is time to pull the trigger on a refinance if you are thinking about it. If you want to refinance with a conventional loan, you will need to have at least 20% in equity for most lenders.
If you have an FHA loan from a few years ago, you may actually want to consider refinancing into a conventional loan as soon as you can. Rates are still low, and home prices have gone up a lot from three years ago. If you now have 20% equity, you could refinance into a conventional loan and get rid of your mortgage insurance.
If you are going to refinance into an FHA program, you are in luck: FHA-mortgage rates today are often lower than market rates because they are backed by the federal government. So, you can enjoy a refinance rate well below 4% in some cases in 2018. Even if your credit is damaged, you still can get a solid rate.
A good FHA program to consider is an FHA streamline refinance. This allows you to refinance your FHA loan into a lower rate with FHA. You do not need to go through traditional underwriting and they do not require a new appraisal, credit check or income verification. FHA refinance guidelines remain flexible and that is what, so many borrowers are looking for.
VA loans also are a great deal right now with rates that are below market. This means you will almost certainly get a rate well under 4% for your refinance. You can qualify in many cases for a streamline VA refinance as well, which has the same rules as an FHA streamline refinance but with even lower rates.
According to Zillow, as of the January 2018, a VA loan for 30 years was right at 4%, while conventional loans were at 4.3%.
A USDA loan also can go through a streamline refinance right now and you can get a very low rate. No new appraisal is needed, and you do not even have to qualify with whatever your current income is. USDA will just need to confirm that you are still within program income limits. Check the 2018 USDA loan requirements today.
General Mortgage Rate Predictions for 2018
The clear majority of rate forecasters are saying that rates will rise in 2018. Below are some of the predictions for conventional rates for this year from various sources.
- Freddie Mac: 4.4%
- Mortgage Bankers Assn.: 4.6%
- Kiplinger: 4.4%
- National Assn. of Home Builders: 4.2%
We think that rates for both new loans and refinances will rise this year because given the strong economic activity we are seeing, rates are too low. It is inevitable they will go up. During the last boom, rates were around 6.5%. Rates are lower than they should be and will soon go up.
Takeaways on Choosing the Best Home Refinance Mortgage in 2018
There are a number of reasons that mortgage interest rates still are below where they should be. Many experts think that inflation is low, and this is causing rates to stay down. But even the Fed has not fully been able to explain why rates are not higher. There is no question though that rates are under where they should be, and this is temporary. As the economy gathers steam this year, rates will go up. It is very unlikely that rates will be lower in a year than they are now, so a refinance immediately makes sense to us.