When bond prices rise, and yields fall along with interest rates, a recession is sure to follow. When Americans celebrated the 2009 New Year, mortgage rates were at a historic low – the lowest they’ve been since 1971. And, many VA loan borrowers wonder whether now is the time to take advantage of low rates, or will they go lower.  

 

Economists predicted the latter half of 2008 and beginning of 2009 to represent the worst housing market since the great depression.  The same people who predicted this crash are hoping the drop in interest rates will kick-start the market and help heal the economy.

 

Some assume that when mortgage rates plummet, people race to refinance their home loans. But did they?  Shortly after that the Federal Reserve announced it would buy $600 billion in mortgage-backed securities from Fannie Mae and Freddie Mac in the form of a bailout, the Treasury Department it would like to see interest rates drop to 4.5%. 

 

Perhaps the Fed’s announcement of the target rate may have inadvertently stifled lending, because some borrowers are choosing to wait for the lowest rate possible.  The fact is that 4.5% is only a general goal and there is no telling whether it will ever be widely available to most borrowers without paying discount points (fees used to lower rates).  Therefore some could be waiting for a train that never comes.

 

The question is, should a borrower wait for interest rates to reach the announced goal or act now on a home refinance or purchase before interest rates inevitably go back up? Waiting could mean missing the opportunity altogether. What is the best advice for a VA borrower?

 

Perhaps examining what determines mortgage rates in the first place can help. Credit scores, mortgage history, income documentation, discount points, and many other factors can raise or lower an individual’s mortgage rate.  When average mortgage rates fell, to say 5.19% on a 30-yr fixed loan, one had a decent chance of reducing it to the target 4.5% with all these factors.

 

Experts agree that low rates may help some people refinance to better terms and more affordable monthly payments. Those refinancing into a lower rate may have more money to spend on paying down debt and other things. Many people seeking conventional or FHA loans will most likely need to have money for a down payment.    

 

This is where the VA interest rate advantage comes into play.  For those seeking VA mortgages, however, waiting for a few tenths of a point lower rate might not be as important as the immediate zero down and 100% financing benefits VA borrowers can get any time.  And, VA borrowers with equity in their homes can get cash out now to pay down debts, make home improvements or pay for other things they need.  

 

At any rate, VA loans make sense to most who are eligible.  The benefits associated with veterans’ loans make them a wise choice for a VA-eligible borrower in a recession with falling interest rates or otherwise. Some of these benefits include:

 

·    No down payment

·    Up to 100% financing on purchases and refinances

·    No private mortgage insurance

·    No prepayment penalty

·    Conforming loan limits that allow for loans over $417,000 in some high-cost counties

·    Streamline refinance capabilities

 

For those who already have a VA loan refinancing for today’s lower rates can be as easy as 1-2-3.   With a VA to VA interest rate reduction refinance loan (IRRRL) or Streamline the process is much faster. If interest rates drop even lower, a VA streamline refinance will enable a VA borrower to get the lowest rate possible.  There is no need for an appraisal and no re-qualifying requirements associated with a streamline refinance. Mortgage history is usually all that’s considered with a VA streamline refinance loan.  For VA loans, low VA interest rates are an added bonus.   The VA streamline refinance program can help those waiting the purchase a home until rates drop.   Buy now, streamline later. 

 

Only time will tell how low interest rates will go before they begin to rise again. The only thing that is certain is that VA loan benefits are as attractive as they’ve ever been and refinancing or streamlining with a VA mortgage at today’s low rates can be a sound option for most VA-eligible borrowers.