June rate hike? Too late for Americans’ to refinance their mortgage?


Mortgage rates have been historically low for several years, but a surprising number of American borrowers are still not taking advantage to refinance their mortgage. The Fed raised rates in early December and the common expectation was that mortgage rates would raise in 2016.

The release of the April’s Fed’s minutes indicates that a June rate hike is on the table. Market expectations for a June rate hike moderated to a 28 percent chance Thursday afternoon. The probability for a July hike was 52 percent, a touch above Wednesday’s 51 percent chance.

Are Americans not aware that mortgage rates are on the rise? This could be their last chance to lock in some low mortgage rates.

Being Canadian, I am by no means of an expert on the American mortgage market. It is much more complicated than the Canadian market. What I do know is paying down mortgage debt can save thousands of dollars in interest.

Reducing your interest rate and decreasing the amortization period are the two easiest ways to achieve debt free-living. The decision is not that simple for Americans because mortgage interest is tax-deductible in the U.S. so the savings really depends on your marginal tax rate. Individuals in the lower brackets will benefit the most. Credit scores and the amount of equity that you have in your home are other factors which will affect your ability to refinance your mortgage.

I used an on-line amortization schedule calculator to run some different mortgage refinancing options. Keep in mind, the amount of the interest savings depends on the size of the mortgage.

If you can handle an increase of $200 to $300 a month in mortgage payments  than refinancing a 30 year fix to a 20 year fix could save you a bundle in mortgage interest. For example: refinancing $300,000 from  4.5% (30 yr. fix) to $3.25% (20 yr. fix) would save the borrower $138,839 in interest.

One of the blogs that I follow How to stuff your pig posted “How I Made a $665,680.41 Mistake!”

Here is a portion of her post:

It Was Bitter Pill to Swallow

I still find it hard to believe that I had agreed so readily to pay $405,820.74 in interest on a home that cost only $259,859.67. It’s even harder to believe that I signed a loan where the interest alone was higher than the agreed purchase price by 56%! To top it all off, I put zero down and was stuck paying that dreaded PMI (Private Mortgage Insurance).

Was I on something? I did go through a brief addiction with Oreo cookies. Maybe I could blame this on a sugar high.

Seriously. What was I thinking to sign my life away to the tune of $665,680.41 for a house I had agreed to buy for a cost of $259,859.67?

To read the entire post click here: “How I Made a $665,680.41 Mistake!”

I do recommend doing some on-line research on mortgage rates in your area. Take those numbers and compare them at http://www.amortization-calc.com/ to see if mortgage refinancing makes sense. Remember that the cost of refinancing is tax-deductible but it would be spread out over the length of the new mortgage. You have nothing to lose but time.

Disclaimer:  Mortgage refinancing is very complicate, do your own research and shop around for the best deal.






One thought on “June rate hike? Too late for Americans’ to refinance their mortgage?

  1. Same thoughts here in Belgium. Despite that refinancing is at record levels in Belgium, there are still a lot of people out there that do not seem to understand the advantage. Or maybe they do not like the hassle.

    At work, we pushed a few colleagues… One went all the way through and now has with the same monthly payment a few years less to pay.

    We have refinanced already 2 times. Adding some capital made us gain 9 years and a 30pct lower monthly payment… We sleep way better at night now.

    Liked by 1 person

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