Financial Perspectives: What is going on with mortgage rates?

There has been a lot of press in the past week or so about how dramatically the housing market slowed down last month.

It is pretty clear that this is related to the expiration of the government’s first-time homebuyer tax credit, in which buyers were eligible for an $8,000 tax credit.

The lack of buying activity coupled with the turmoil in Europe have helped to drive down interest rates to an all-time low this week – 4.73 percent for the benchmark 30 year fixed rate as June 23 (according to bankrate.com).

What impact does the economy in Europe have on mortgage rates here?

For starters, during times of economic turmoil, investors around the world seek safety for their investments, and many invest in US Treasury Bonds. With a surge in demand for investments for Treasury bonds, the yield (return that can be earned on the bonds) goes down. This has a direct effect on mortgage rates, as most mortgages are priced off of Treasury Bond yields. Also helping rates is the fact that inflation continues to be well under control, at least for now.

Some of the sentiment in the market is that housing could see a short-term boost as potential home buyers who have been sitting on the sidelines may decide to make a home purchase as the combination of low interest rates and housing prices will be too hard to resist. In addition, investors who had moved out of real estate investments could also return, as money could flow from the stock market to the real estate market, given the recent market volatility.

What if you are not looking to purchase a home or make a real estate investment?

If you own a home with a mortgage, this may be the best opportunity you are going to have to refinance your home at rates; we may not see these conditions again for a long time. This could free up additional cash flow that you could dedicate for other purposes, like funding an IRA to help you prepare for retirement.

Before you commit to the refinancing, be sure to do your homework to understand the payback period – the amount of time it will take to recover the costs will you will incur to complete the refinance. Many people choose to add the refinance costs to their mortgage balance rather than pay these costs out of pocket. Clearly, paying the costs out of pocket is preferable, as it will result in a lower monthly payment, but many people cannot afford to do this. Also, be sure to get a detailed summary of all closing costs upfront.

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC is located at 8275 Frankford Ave. (215-332-4968)