Did you miss the super-low-mortgage-rates boat?
Since the Federal Reserve ended its program of purchasing mortgage-backed securities at the end of March, mortgage rates have ticked up. Average 30-year fixed rates were 5.21% for the week ending April 9, up from 5.05% about a month ago, according to HSH Associates, a mortgage-data tracking firm. And if the economy keeps on current course, HSH expects to see conforming 30-year rates in the 5.75% to 6% range by end of 2010, give or take a little, says Keith Gumbinger, vice president at the firm.
Plenty of qualified homeowners have already taken advantage of the low rates and reduced their payments with a refinance. But activity has moderated some.
“Refinancing has definitely slowed down over the last month or so,” says Bruce Brown, a certified mortgage planning specialist with Pulaski Bank Home Lending in Kansas City, Mo. “It seems that every time rates would drop below 5% we’d get a rash of refinances,” he says, which slows down when they move back over 5%.
“There are still lots of people who can benefit from refinancing,” Brown says.
A handful of factors must be weighed when deciding to refinance a mortgage. Among them: the cost to refinance, the monthly payment savings, and how long you plan to be in the property. As long as you figure you can recoup your refinancing costs within 12 to 18 months, a refinance can be a sensible move, says Frank Ruzicka, a mortgage banker with Cornerstone Mortgage in St. Louis, Mo. (Read our story about costly refinancing fees.)
Here are some refinancing options to consider:
Fixed rate
Borrowers with an adjustable-rate mortgage may be concerned that they won’t be able to afford their payments once their rate resets – at a possibly higher rate. (The rates on these loans adjust on a specified schedule after an initial fixed period based on movements in an interest rate index.)
In that case, they should consider refinancing into a fixed-rate loan, says Jack Guttentag, a professor of finance emeritus at the Wharton School of the University of Pennsylvania.
The savings they’re enjoying now from the low ARM rate (which on average run a point below the 30-year fixed rate) may not justify the risk of getting caught by a rate increase later. The value comes from the predictability of having a mortgage payment that won’t reset.
Locking in a rate now is particularly a good idea for borrowers who had gotten an ARM with the intention of living in the home for, say, five years, but because of real estate conditions, have to stay longer in the hope of a rebound in home values, says Tim Galligan, sales manager and mortgage consultant with 1st Advantage Mortgage in Lombard, Ill.
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