They Brexit, we bought it. Well, we bought a new mortgage, at least.
Lenders say they have seen an increase in refinance applications since the United Kingdom voted to exit the European Union. The vote happened Thursday, and on Friday morning, mortgage rates tumbled about one-eighth of a percentage point. Then the underlying bond yields crept down a little Monday, then again Tuesday, then again Wednesday.
WASHINGTON, May 26, 2016 /PRNewswire-USNewswire/ –The US Small Business Administration (SBA) released regulations today for the much-anticipated refinancing program for the administrations 504 commercial property and equipment loan program andwill begin accepting applications on June 24, 2016.
The release of these regulations only five months after the legislation reinstating the program permanently was passed represents clearing the final hurdle to get the program up and running.
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NEW YORK A repricing wave has hit the loan space as US borrowers attempt to lower the spread of their existing term loans, though a weak secondary market signals that not every company will get their wish.
Component manufacturer US Farathane and beer maker Pabst Brewing were among the first names to pull off refinancings as the market moved on from the volatility that hit in the second half of 2015. US Farathane shaved off 50bp from its US$360m term loan to 400bp over Libor with a 1% floor, while Pabst slashed 100bp from its US$474.5m term loan to 475bp over Libor with a 1% floor.
Others borrowers slashing pricing are grocer Albertson’s, networking firm Riverbed Technology and textbook publisher Cengage Learning.
“The loan market is a little ahead of itself,” said Steven Oh, head of fixed income at PineBridge. “It doesn’t feel like the market is strong enough for these repricings.”
Despite the recent spate of deals, the secondary market is weaker than in other periods when issuers successfully cut pricing. Since February, the average bid for the SMi100 composite – the 100 most widely-held loans – has rallied 3 points to 98.32, and the average bid in the overall market has gained 1.33 points to 95.73. However, both are substantially below their levels during last summer’s repricing wave, when the average bid for the SMi100 was above 99 and the overall market above 98.
“I dont see enough pushback to prevent the repricings for good quality credits, but the test will be when higher risk credits attempt to reprice,” said Oh.
Furthermore, the percentage of loans trading above par, the siren call to reprice, was 39.5% for the SMi100 and 13.9% for the overall market on Tuesday, far short of the 65% and 36% spring a year ago during the last repricing wave.
By these metrics, the secondary market now looks less robust than when Cengage and others shelved repricing attempts last June.
DRIVEN BY REPAYMENTS
The primary reason repricings are appearing is the dearth of new issue loans. The repayments of term loans, such as Cequel and Jardin, as well as Dell’s smaller-than-expected term loan, are also contributing factors that have left investors with cash to deploy.
Demand is overwhelming supply, in particular for loans that fit into CLOs. And new CLO formation climbed to US$17.6bn as of May 19 after less than US$1bn of deals priced in January, but that total was down 62% over the same period last year.
“CLOs in particular don’t want to lose assets,” said Oh.
Though many of these repricing deals are expected to clear, market participants expect the number of companies successfully lowering borrowing costs to be smaller than in repricing waves of past. Furthermore, they point to the fragility of the recent market tone and suggest that this repricing spigot could tail off soon.
(Additional reporting by Jonathan Schwarzberg.)
(Reporting by Lisa Lee; Editing By Chris Mangham and Michelle Sierra)
What are the potential disadvantages?
Kathryn Hauer: If you get cash back in addition to your refinance, you could end up with a higher monthly mortgage payment, depending on how much you take out. You don’t want to reduce your savings rate — for example, contribute less to your 401(k) — as a result of a refinance.
Roslyn Lash: Once you add the fees into the loan amount, the total cost of refinancing could outweigh the actual benefits. You must carefully analyze the numbers to determine if refinancing is the best option. To get a realistic estimate of the total cost, it’s imperative to get a loan estimate from each potential lender. This estimate will not only provide total cost, but getting one from a couple of lenders will provide a true comparison of fees.
Is refinancing a better option than a home equity line of credit?
Kathryn Hauer: Refinancing can be a better option than a HELOC if you plan to stay in your home for more than five years and if you can refinance to an interest rate lower than your current rate. If you think you might move soon or if your current mortgage rate is already low, a HELOC would probably be a better choice.
Roslyn Lash: Determining the best option between refinancing or a HELOC depends on your individual financial situation. If you have a mortgage of 3.8%, for example, it’s unlikely that refinancing would benefit you, since your rate is already low. In this case, your best option would be a HELOC, if the monthly payments are affordable. Each individual must take into account the current interest rate, remaining term and mortgage balance, as well as income and other debts. A careful analysis of these figures will determine the most affordable and feasible option.
If the costs of a planned home repair or renovation are minimal, and the monthly payment is within the household budget, it may be more economical to get a HELOC because some of the traditional fees may not apply. Of course, the disadvantage to getting a HELOC is the obligation of a second, although smaller, mortgage.
What are some tips to best take advantage of the refinancing option?
Roslyn Lash: Look closely at the interest rate as well as the fees. It’s not uncommon for a lender’s interest rate to be low, but for the fees to be excessive. This strategy lets consumers think they’re getting a good deal when in actuality the cost of the “one-time” fees eats away at their overall savings. Compare each lender’s annual percentage rate. The APR provides an accurate comparison because it combines the refinance rate and the fees.
Kathryn Hauer: Shop around for the best refinance rates and don’t forget to evaluate the deals at your local credit union. Also, make sure you reduce outstanding credit as much as possible and pay your bills on time in preparation for the application process so you get the best rate possible.
What else should consumers should know before they decide?
Roslyn Lash: Refinancing could let you get rid of private mortgage insurance premiums. When the mortgage was initially taken out, if the homebuyer didn’t contribute at least a 20% down payment, PMI was included in the payment, resulting in a higher mortgage payment. However, as the mortgage balance decreased and property values increased, it’s possible that the PMI could be eliminated, thus further reducing the payment.
Kathryn Hauer: Be honest with yourself. Are these home repairs that you want — replace an ugly but functional patio — or that you need — repair a leaking roof? Sometimes you have repairs that are necessary and unavoidable, so if you plan to stay in your home for a few more years, a refinance could be the perfect solution. However, you don’t want to refinance only to put in a swimming pool that the children quickly outgrow, while you scrape up cash to cover your higher payments plus the kids’ college tuition.
Kathryn Hauer is a financial counselor and founder of Wilson David Investment Advisors in Aiken, South Carolina.
Roslyn Lash is a financial counselor at Youth Smart Financial Education Services in Winston-Salem, North Carolina.
Slightly higher mortgage rates did not deter homebuyers looking for a loan last week.
Total mortgage application volume increased 2.3 percent on a seasonally adjusted basis for the week compared to the previous week. Applications are now nearly 24 percent higher than one year ago, according to a weekly survey by the Mortgage Bankers Association.
Politicians arent the only ones listening, either. Due to the notoriety and overwhelming amount of outstanding student debt, financial technology start-ups looking to address the issue have emerged. A number of existing large financial institutions have also been joining the conversation, with attractive refinancing opportunities, which could give student loan borrowers a much needed financial break.
When it comes to privately refinancing federal student loans (eg, any lending organization other than the government), the overarching strategy is to obtain an interest rate that is lower than the rate of your current loan(s).
As a result, refinancing at a lower rate is often a financially positive one because reducing the rate on your federal student loans could:
- Reduce the amount of interest you pay over the life of your loan(s).
- Reduce your monthly loan payments.
- Be a combination of the two, depending on the details of the loan.
The Nykredit Group has conducted bond sales in connection with the refinancing of ARMs based on the refinancing price principle. The interest rates will be reset on 1 July 2016.
For a personal borrower with a 30Y annuity loan of DKK 1m, interest rate reset results in the following cash rates:
The United States Department of Agriculture (USDA) has lowered the cost to refinance its rural housing loans as part of a series of changes that will save homeowners both time and money.
The changes take effect June 2 and apply to USDA mortgages and those where USDA has issued a loan note guarantee.
“Helping homeowners refinance their homes to reduce their monthly payments and take advantage of low interest rates will bring increased capital to rural residents and the communities where they live and work,” said Tony Hernandez, USDA Rural Housing Service Administrator.
Under the changes, homeowners current on their mortgages for the past 12 months will no longer be required to secure an appraisal, provide a credit report or undergo a debt-to-income calculation when they refinance for a 30-year term.
Scott Detweiler, president of the Fayette Board of Realtors, said the recent designation by the USDA to declare the entire county as a rural area instead of certain parts previously based on population is positive measure for the consumer and economy.
“They’re making a presence here with everyone now qualifying,” said Detweiler. “In time this will help the real estate business.”
To date, USDA reported nearly 9,500 homeowners have refinanced their mortgages with some borrowers saving as much as $600 a month. The average savings is around $150 per month.
There are over 32,000 USDA guarantee loans in the state that includes 602 in Fayette, 104 in Greene and 576 in Washington counties, according to David Corwin, USDA housing program director for Pennsylvania.
He said the streamlined rules are consistent with banking industry lending standards and similar to the programs offered by the Department of Housing and Urban Development and Department of Veterans Affairs.
“We (USDA) finally have the same ability,” said Corwin.
Corwin said to be eligible, people with USDA mortgages would need to save a minimum of $50 a month with the refinancing.
“With banks, the USDA and everyone else doing their fair share to help those that want to buy or refinance, hopefully before long people can reap the advantage,” said Detweiler.
The USDA indicated the changes are based on testing from a pilot program initiated in 2012 that was later expanded to include 34 states and Puerto Rico.
Since 2009, USDA Rural Development has helped 1.1 million rural residents buy homes.
For more in formation, interested homeowners with USDA loan guarantees can contact their lender about refinance procedures. Homeowners with USDA Direct loans should contact a USDA housing specialist.
A list of State offices is available at: http://www.rd.usda.gov/contact-us/state-offices.
We need to be good stewards of the money and to do that we needed to look at refinancing the jail, said County Commissioners President Michael Taylor. Were going through the process of refinancing those bonds. It appears they have worked it out so that there is some flexibility in the lease.
The jail bonds are being paid off by a special County Adjusted Gross Income Tax that has generated more money than needed to meet the jail bond obligation. That fund was developed under special legislation by the Indiana General Assembly. With the countys purchase of the former Old National Bank Building downtown officials are considering renovating that building and making it an annex and moving many of the courthouse offices there. That move would require some additional money and county officials have discussed the possibility of going to the Legislature again to ask that the rate be extended to pay for the updated facilities.
As it stands, if the jail CAGIT stays in place, the bonds could be retired fairly quickly.
Right now it appears that in July of 18 there would be enough money to pay that bond off and get rid of that tax rate, said Gabhart. We just want to keep our options open. If we can lower our tax rate and find the capital in other places to invest in these projects, that is certainly what we want to do. However, we squeeze as much out of our budget as we can. We need to look at all sources of revenue. We have that tax option as well. The lower taxes we have, the better off it is for everybody. We have to make sure we have our county services at the level we need them to be at.