Is 2014 Your Year to Refinance?

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For homeowners looking to refinance, recent years have represented a remarkable run of low interest rates and special programs for leveraging new mortgage terms -- even if your home value plummeted during the recession.

This year, in a new report, Freddie Mac predicts that borrowers who refinanced in 2013 will save a net of approximately $21 billion in interest during the first 12 months of their loans. Can you get a piece of those savings?

With home values climbing again, owners who weren't able to take advantage of opportunities prior to 2014 now have a new chance to catch up -- and some may even find that lenders are ready to give them the attention they need to "repair" mortgages that were poorly constructed in the first place.

Shifting landscapes after the boom
Homeowners may be on the move again, helping to drive demand for housing in some parts of the country. According to one recent American Express report, 16% of polled homeowners in the U.S. say they intend to move house in 2014, as compared to 10% in 2012. Forty-six percent said they'll buy rather than rent this year, up from recent numbers (43% planned to buy in 2013).

Meanwhile, in 2012, single-family originations accounted for 70% of refinances, according to the Q4 2013 refinance report issued by Freddie Mac. In 2013, they made up 60% of the total. But this year, the numbers are expected to top out at only 38%.

Two things are happening. In many cases, homeowners who were going to take advantage of the federal Home Affordable Refinance Program, rolled out in 2009, have probably done so already.

And while HARP's impact certainly helped drive refinance statistics upwards -- in some states, by one Market Realist report, HARP accounted for nearly half of all refinance activity as recently as 2012 -- in other cases, low rates fueled a boom in non-HARP refinancing, too.

Now, even as that engine starts to cool, for those who held off on refinancing, there's still steam to set lower payments in motion. Rising home values are helping to bring equity back into the equation for many borrowers -- and banks and homeowners are poised to go to the refinancing table again.

Time to pay less (and pay faster)
Historically, until about 2000, the average 30-year fixed mortgage interest rate in the U.S. was upwards of 8.7%. In 2014, we're at approximately half that for most programs -- sometimes even lower.

The Freddie Mac report tells us the average interest on a fixed-rate 30-year mortgage is 3.8%. Fifteen-year terms brought an average 3.1% fixed rate last year.

These are the kind of numbers that prompt homeowner activity, and though the boom may be over, to some extent, refinancing will still echo its effects. Jeff Lazerson, president of Mortgage Grader, expects to see a new, if smaller, wave of mortgage refinances going forward.

"What we're seeing now, in 2014, are the really hard loans," Lazerson said in a phone interview. "These are loans that originators didn't want to take time to construct, piece together, and do the heavy lifting that would have solved whatever issues were in the loan file in the first place."

That is, with much of the low-hanging fruit already claimed during the boom, these harder-case loans are now likely worth a fresh look by lenders. Homeowners looking to refinance stand to benefit from just that kind of impetus.

"If you missed out on a refinance the last couple years because you didn't qualify," said Lazerson, "now is a great time to revisit that. The consumer is getting the attention from the lenders now that the large volume of refinances is not out there."

What's more, refinancing in 2014 could lead to even lower payments for other reasons, not just a better interest rate.

Take mortgage insurance. In one example, especially for first-time homebuyers, Federal Housing Administration mortgages are a tool to help owners get through that first front door. The often low down payments that these begin with, however, tend to make insurance mandatory for the loan.

Here's how it works: beyond a one-time 1.75% fee at the start of the process, FHA mortgage insurance rates tend to add around 1.35% to the interest rate of the loan. According to 2013 HUD numbers, single-family fixed-rate interest rates on FHA loans then average 3.53%.

With insurance tacked onto that, homeowners are paying something in the area of 4.88% per month. Also, it's important to note that, in 2013, FHA mortgage insurance became a lifetime-of-the-loan deal, as opposed to falling off after five to seven years of payments.

Refinancing under terms that eliminate the insurance requirement -- especially in light of returning equity on homes for which owners might not have qualified a year or two ago -- can now bring homeowners back into the 3.1%-3.8% range, all included.

Put another way, if you can pay less across the life of your mortgage, why wouldn't you?

Lower rates can enable faster mortgage payoffs, so the life of a loan needn't be as long. Refinancing to 15 years, or even 10 years, shifts the mortgage to shorter terms, and accounted for 39% of the refinancing that Freddie Mac measured in 2013.

It's not too late to take advantage
For homeowners who've not yet tapped into these deeply lower rates and changing home values, 2014 stands to be a great year to restructure mortgage payments. The benefits that emerged during the post-collapse market are still out there.

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