I agree with Daniel. All you can do is look at what is going now and how it will affect your long term goals. Predicting future rate falls is nearly impossible.

posted February 14, 2008

Lock in NOW! The issue is risk/return. The distance between a 6% fixed and zero is 600 bps, and the gap between 6% and infinity is infinity less 6%. We have a LOT of inflation -- food, medical, fuel, commodities, etc, and bond yields (which set mortgage rates) are artificially low owing to flight to quality into treasuries. If you lock in now, and the rate falls another 50 basis points you will save all of 30 bps after tax. You are "close enough" here. Feel free to subscribe to my complementary investment letter if you wish at the link below.

Links:

• http://www.langenberg-llc.com

posted February 14, 2008

It is, of course, difficult to say how much fixed mortgage rates will fall or increase. Having said that, there are a number of things you have to consider before refinancing. First of all, you have to consider your credit score and credit history. If you feel you are in a good credit position, please continue. Second, take one of the available online mortgage refinancing calculators, and compare your current rate with the average interest rate in your area. The calculator will exactly tell you if it is worth refinancing for your particular situation right now. If there is a financial advantage for you to refinance, please do so as soon as possible. However, nowadays it is getting more and more difficult to do that if you are not a perfect credit history one. Finally, my personal view is wait a little bit.

posted February 14, 2008

In most cases the answer is to lock in when interest rates hit a level that you feel comfortable with, this keeps you in control of your finances not whoever sets the interest rates.

However there are disadvantages that I'm sure you are aware of:

There may well be a penalty for coming out of the contract early - such as paying off the loan early. If tying-in it would certainly be worth also just checking on the lenders policies for making overpayments, moving house, and further borrowing in the future.

Always worth speaking to an independent mortgage broker who is authorised to be able to make you a personal recommendation based on your circumstances and future plans. If what they say makes sense you can then decide if you want to accept their recommendations and allow them to place the mortgage for you.

Good luck

posted February 14, 2008

Jeff,
When all else fails, just remember the mortgage market, like most others, is cyclical. The problem is no one know for sure exactly when it will shift. The Fed is doing everything it can to avoid a full-fleged recession. And the bond markets are so volatile that it's hard to predict on daily basis, much less months from now, where rates are going to be.

We have been seen the margin widen befween ARM and Fixed rates in the last month or so. Typically, when the Fed lowers the Federal Funds Rate, this actually increases long-term fixed rates, as economists see this as a hopeful sign of market turn-around.

As the market looks to right itself, and the Fed continues to push for a boost in the economy, long-term rates will certainly rise. As to how much and to how soon is anyone's guess. As Mr. Langenberg pointed out, the tax benefits of a mortgage rate should always be considered. Especially because the net effective rate (calculated according to your bracket) is seldom used by mortgage professionals, but it shows what you're really paying versus the payment you see.

Despite the "credit crunch," and "housing meltdown." those with good credit can still get a 30 year fixed rate under 6%. Historically speaking, this is excellent. If this is the program you're looking for, and you know you'll be in your home for quite some time, I would lock in soon. Utilizing your after-tax benefits as a way to find your true payment / savings will make even a 1/2 point change in the interest rate seem inconsequential. But you might want to lock in while they're at their floor.
Thanks...feel free to contact me with any questions.
JP Marzano
james.marzano@benchmarklends.com

posted February 14, 2008

You've certainly received some great answers so far. It really comes down to now. What makes sense today? If you're talking about refinancing, you have to consider your current rate and term and decide whether you're going to save money over the next few years. I don't look at savings over a 30 year period because you'll likely not be in this loan that long. So based on the cost of refinancing (points and all the wonderful fees that come with it), how much will you be "saving" over the next few years? If the bottom line looks good, then why wait? If the savings is worth it now, then count your blessings. If rates fall lower then look at the fact that you still created a better situation than the one you were refinancing out of. What if rates rise? You don't want to miss a good thing on the off chance it could get just a little better! Evaluate where you are now and how well you could do with a refi today and let that be your guide.

posted February 14, 2008

Yes. Period.

So what if they fall much farther, listen to the ads, some places offer free refinancing so you could take advantage of that.

Why "Yes. Period." you ask - the ten year treasury is near a 50 year low - your 30 year mortgage trades on a spread relative to the 10 year treasury. So quite simply do you think rates will "fall much further"? No. Can they go down, yes, much further no.

Check out the St. Louis Federal reserve - look up 10 year treasury or go to Bigcharts.com and look at all the data (about 10 years) under the symbol TNX.

Links:

• http://research.stlouisfed.org/fred2/series/DGS10/

posted February 14, 2008

One of the happiest aspects of being part of Linkedin is seeing the care with which most respondents answer these questions. Each of the preceeding replies enlarges what you have to consider before making this decision. If you can be absolutely sure you will be moving within a very short time, the cost of refinancing will outweigh the savings. Your mortgage representative can show you the "crossover point". If you now have an ARM, an adjustable rate mortgage, and if your credit rating is fairly pristrine, it would almost certainly be to your advantage to refinance now. Even though it is unclear what will happen in the near future to property values, this is a good time to know that you will not have an escalating mortgage payment. Finally, as Mr. Vinson wrote, make sure that there are no problems with paying off your present mortgage. Here, in New Jersey, there are no pre-payment penaltie, but I do not know about other areas. Best of everything in this decision.

posted February 14, 2008

Hi Jeffrey: I like Brian's answer below. That has some statistics behind it. Yes, interest rates are low now and I suspect they will stay low for most of this year. Much of low rates has to do with the stock market. Generally, if the stock market is off, it means people are putting their money into safer havens such as bonds. If the bond market is strong, mortgage interest rates will be low. I would bet that that will happen as people are a little worried about a downturn. When this happens, it's good news for you on the borrowing front. I don't expect rates to fall much further than they already have. Anytime, you can borrow money at 6% or under, you should seriously consider it. Be sure to see how much you will actually save by refinancing. Remember that to refinance also costs money. I hope this helps and good luck!

Paul

posted February 14, 2008

I think we are seeing the bottom of the rates for this year. I have my personal doubts that they will get any lower. It is an election year and that also means a bit of instability but I would tell you that now is the best time. If things go lower then you got in to it too early but if they go higher you will thanks yourself.

Don't look at what rates are doing look at what you can afford to do at the time when you can do it. If values keep dropping then you may be left holding a empty bag. I caution people all the time to make your decision now and go with it. Don't try to time the market you can never predicte what will happen.

posted February 14, 2008

Well, no one of us can tell you future interest rates with any more certainty than you can tell me future gold prices. (*grin*)

That said, this question confuses me a little because rates have been bouncing near 6% for about five years now, so what would you be refinancing FROM? Details, please.

The old rule of thumb was that you wanted to be able to save at least 100 bips before it was worth going through the hassle and expenses of a refi.

But there are so many variables here -- what tax bracket you're in, whether you're trying to take an ARM to a fixed, whether you carry an American Express card -- that it's hard to say.

Ali
---
Alison Rogers
author, "Diary of a Real Estate Rookie"
Insider Real Estate Tips with a Twist of Humor
http://tinyurl.com/2ag28z

Links:

• http://tinyurl.com/2ag28z

posted February 14, 2008

Why would you go with a 30 year fixed, first off, and second, when did you last refi. and what was the leverage? If you have been playing the refi. game like some, you may have actually spent quite a bit more than you think along the way in points and fees, significantly increasing you actual cost basis. Also, a 30 year fixed isn't always the best play. It again depends on leverage, and length of ownership, among other things. I would explore all the options, and do what is best for your situation at that time, which may or may not be now.

posted February 14, 2008

No one can predict the future, but feel now is a good time to lock-in the low rates. Once the capital markets have stabilized, interest rates will increase.

posted February 14, 2008

While no one knows the direction of long term rates, it is possible they will go somewhat lower but I would not bet on the rates retesting the lows they reached a few years ago. Even if the Federal Reserve lowers rates for lenders, the fact that there are many more lenders that are no longer lending coupled with the fact that those that are lending tend to be more conservative (they are pricing in higher spreads over their cost of funds) makes me think we will not see rates significantly lower than they are today. I think the most they will fall is another 50 basis points, if that much , over the year. If you need to refinance for personal and financial reasons I would not hold out for the absolute bottom. The truth is the difference between 5.75 and say 5.50 or 5.25 may not be that much depending on the size of your loan. Lock in a good rate and forget about it.
Don't make the mistake millions made by taking short tern financing for a house they plan on living in long term. Now they see that the short term gain was offset by the uncertainty and cost of having to refinance just a few years later.

posted February 14, 2008

Jeffrey:

Good question. Of course no one knows for sure. Remember a couple weeks ago when the rates fell drastically in one day. This only happened for a few hours but was significant. My prediction is that it may happen again in the near future. I would advise you to get your loan application submitted, appraisal done and the whold nine yards and wait to lock. When the rate drops lock it in for the shortest rate lock available.

posted February 14, 2008

The rates for 30 year will go down more. Every time the Feds lower the interest rates, it does not directly affect the mortgage rates until a few weeks later. This also occurs because bonds usually go up after a rate cut. I recently purchased a house and in the middle of getting a mortgage. I have been monitoring the rates for the last 6 months and we are not at the bottom yet.

I do know that there might be another rate cut, so it might be good to look at refinance options in a month or two.

Hope this helps.

posted February 15, 2008

I can't tell you whether to lock in or not, but I will suggest a couple of things that you can think about. In the end, it's not possible to make a blanket statement that applies to everyone. The decision is heavily dependent on your personal situation.

1) Look at what rate you could get now. Then imagine that they fall further. How much money are you going to save as a result? I would suggest that you don't look at how much you save over 30 years because it is unlikely that you'll hold your mortgage for that 30 years (how long have you had your current one?). How likely is it that you'll move in 5 years?

Look at what the savings difference is between the rate you could get today and what would happen if rates went up or down.

2) Mortgage rates don't always follow what happens with the Treasury rate or Fed announcements. Part of the mortgage rate reflects credit risk as perceived by the lenders. This "credit spread" (difference between the Treasury and mortgage rate) has been getting bigger over the last year, especially for Jumbo mortgages.

3) The economic stimulous package has a provision for Fannie Mae and Freddie Mac to buy larger mortgages. The will affect mortgage rates for mortgages in that range when it takes affect.

4) underwriting standards and mortgage products are changing: Just because rates are going down, doesn't mean that you can either get a loan or that the loan you want exists anymore. While at one point it was easy to get a 0% down loan, it's much more difficult now. Will it continue to get more difficult or get easier? That's where you have to make your bet.

Hope this gives you a few other things to think about. The actual decision really completely depends on your personal situation,

Larry

posted February 15, 2008

You are getting great advice here as there is no one correct answer. Only you can make this important decision. But I want to offer one word of caution, only do it once. Many people have refinanced several times to get a lower payment and rolled the costs into their loans, eating away at their equity. Make certain you are aware of all costs involved whether you are paying out of pocket or from your equity.

Good luck with your decision.

posted February 15, 2008

Jeffrey, I posted on my blog the rate histories of Fed funds rate, 1month Libor, 30 year fixed rate and what is clear isn that fixed rates do not go down as far as the FED will take short term overnight rates. But, 1 mo Libor, on which many variable rate loans are based does lag the FFR slightly. The European Central Bank (ECB) tries to be independent of the FED, but ends up tracking it pretty much as you can see on the blog over time. All this means that trying to pick the lowest fixed rate mortgage rate is tough and not that beneficial since the swings are likely to be modest. Picking an option ARM can be more beneficial if you pick one that enables you to benefit from further rate declines while capping the loan on the high side.

Links:

• http://www.cmcgroup.wordpress.com

posted February 15, 2008

Jason has worked all over the mortgage industry; he knows his stuff.

posted February 15, 2008

I'm no smarter than anyone else when it comes to predicting interest rates, but I feel it's safe to say that the value of your home will go down before it goes up. That being said, interest rates are relatively low, and now might be a good time for you to refinance.

By the way, there are also other methodologies available for saving time and interest on your mortgage...

Links:

• http://www.vanishmortgage.com

posted February 16, 2008

There's some information about which way rates are headed in the yield curve. On the other hand, this is built into the market rates you are being offered to refinance. So, if you can make sizable money by refinancing, do it - the odds of rates going up/down are already baked into the mortgage.

On the other hand, you may be able to play both sides of the coin.

I have a home equity line with a very large bank. A while ago, they offered me the ability to convert to a fixed rate - lock in the current rate, while keeping the line open for the amount up to my credit limit. Turns out I had the option to move back to the floating HELOC. Because of the recent rate drop, I'm now paying a much lower rate than before - even though I was protected against a rate increase.

Good luck.

posted February 20, 2008