Here’s the quick answer: You should refinance now because rates are at an all time low. If rates do go lower, you can always refinance.
Now the long version.
Despite low mortgage rates recently, some homeowners may have been sitting on the fence waiting for rates to go lower or if you have an adjustable interest rate, you might be tempted to just stay in the existing mortgage. The same suggestion extends to small businesses as well for your commercial building mortgage and outstanding balances on your line of credit. The decision is up to you but here are some reasons why you might want to consider refinancing now:
1) The bond market is in a bubble and experiencing a fluctuation in buyers’ support. I’m not sure what all the fallout will be. The average investor has been panicking and jumping from the stock market into bonds for the last 30 months. Typically, after investors do these panic moves, they will stay in the “safe” investments for quite a while, even during a stock market recovery.
China, Britain and Japan have reduced their exposures to US Treasuries. China has publicly came out and discussed the risk of investing in the US while reducing Treasury holding by $100 Billion dollars. Concerns about the safety of US Treasuries is growing in China due to the nonstop spending.
IMeanwhile, the US Federal Reserve had diverted money to buy our own Treasuries. Our bond market is also currently supported by panicked US investors.
2) The government is determined to keep rates low in order to coddle the recovery. The combination of both bond purchases and government intervention is producing low interest environment that would reduce interest expenses for both individuals and businesses.
3) Companies are jumping into the refinancing game with a bang as they issue bond to replace current debts. Follow the crowd.
4) There is an election coming and politicians typically work hard to reduce or repress any political fallout from economic problems. After the election is over, all bets are usually off until the next cycle in 2012.
5) I anticipate additional layoffs and unemployment in 2011 which will put further stress on our recovery. What about if you don’t have a job in 2011, refinancing to lower costs will be extremely difficult.
6) Property values are expected to experience difficulties as the shadow inventory of foreclosed properties slowly come into the market. Rates may be lower later but you may not get the appraisal value you need to refinance your house.
7) If your credit gets dinged in the near future it will be more difficult, if not impossible, to get refinancing later.
8) Your commercial mortgage may be an adjustable rate loan based on a derivative swap. With the recent Financial Reform Law and the restrictions on derivatives, there will be changes on your mortgage.
9) The full scope of the commercial real estate downturn has not played out yet. There are still a lot of commercial mortgages that have made payments for two years yet are still kept on the books. When these properties go into foreclosure and hit the market, commercial property value will fall further.
10) Fix your commercial mortgage rates and lock in your business expenses.
11) If you’re one of the few lucky businesses that still have an operating line of credit and have a balance, you might want to consider converting part of that into long term debt at a fixed rate.
What about deflation you ask. Well, unless you are willing to sell your property and pocket the cash, you might as well reduce your debt payment as much as possible now.
Have you refinanced recently? Why or why not?
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