The Federal Reserve, along with central banks throughout the world, have been pumping free money into the markets, driving rates at the lowest levels in history. The purpose was to boost borrowing demand, since cheaper rates equates to higher profitability. Yesterday, the Fed announced it would be raising its target rate again.
So how does that affect you?
Well, let’s say you have a mortgage that dates back to when interest rates were higher. You’re stuck paying that interest rate. But meanwhile, a new borrower can get a cheaper rate than you. So, the theory goes, that if you pay off the existing loan with a new one at a lower interest rate, you should be better off.
This is true, to a large extent. Of course, you need to watch out for the closing costs, but if you plan on holding a mortgage for a long time, refinancing now could save you significant sums of money. Rates are only going to go up.
Why is this true? Well, banks are essentially willing to take the same risk for lower compensation (interest rate). This is largely due to macroeconomic factors. And the benefits are there.
For instance, the other day, an investor of mine had loans dating back since before the Great Recession. I was amazed to find he was paying particularly large payments on these rental properties. As a result, I was able to provide him with a blanket rental loan (one loan collateralized by all the rental properties) for 10 years. And rates were in the single digits.
Now if you invest regularly, you know conventional banks are notoriously difficult on investment properties, and they aren’t lending right now. If they do, they require all sorts of documentation, guarantees, and close in 2 months. So a bank might not be your best bet.
That said, private lenders like myself are seeing a lot of refinance volume, with people that want to pull out some cash, and get a lower interest rate. It simply makes sense on a long-term perspective, before rates start to go up significantly.
And this opportunity won’t last. The Federal Reserve is going to raise rates again, probably in December. As those rates go up, so do rates that lenders charge. And they will likely continue to increase rates for the next couple years. So get your refinances in while you can.
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Written by Warren Ifergane.
To learn more about Ifergane Consulting Group, or to submit a deal for consideration, contact info@iferganeconsulting.com, or call 954.798.0726.
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