Sunday, April 26, 2009

Refi Boom - Is It Time To Jump In?

Next turn ...
I refinanced my mortgage recently and it was not easy. Too many choices, too many products, too much number crunching and too much flux. But hey - if you can shave $$$ off your monthly payment - maybe it is worth it!

Rates are down to historically low levels and maybe headed lower. Some are predicting 4% by end of the year but most also agree that rates will not remain this low for too long. The mortgage broker I talked to mentioned that he has not seen such volatility in mortgage rates in 20 years.

Choices galore
30 year fixed, 15 year fixed are the easy ones. The ARMs are still available along with some variations and nuances. Are ARMs worth considering instead of a fixed rate mortgage? Difference in rates is the easy answer. A difference of more than a point in some cases can change the numbers dramatically. What you pick is a personal (and business) decision but there are choices when it comes to mortgage products.

Some consideration include - how long you intend to stay in your house, what is the difference in rates, what amount are you refinancing and closing costs associated with the product.

Closing fees do matter
Closing costs can be pretty high. I was quoted up to $3000 in fees. If you add points - the out-of-pocket expense is even higher. Closing costs do matter because what you save via a reduced monthly payment will have to offset your closing cost expense - before your refinancing starts to put money in your pocket.

When to pull the trigger
When rates are fluctuating as much as they are - locking in a rate is tricky. If you have a preferred rate point - get your bank or broker to call you when rates get in that range. You pay extra but you can also float your rate for a period of time which allows you to lock in a lower rate if rates drop.

Who to work with
Brokers offer multiple products from various lenders whereas banks are limited in their choices. Get recommendations from your realtor, who obviously is in this business and knows who is providing good rates and service.

Bottomline - forget about trying to time the market to lock in the lowest interest rate. If you can save money today with a low interest rate or just sleep better knowing that you have a fixed rate mortgage - the time to refinance is now.

(Graph courtesy of

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