For those of you that haven’t been paying attention, mortgage rates are once again in very attractive territory. On top of that, the Federal Reserve just cut rates, and the Treasury Department is talking about driving 30 year fixed rates down into the 4.5% range in an attempt to stimulate the real estate market. With that as a backdrop, here are some thoughts about mortgage rates and refinancing…
The Federal Reserve and mortgage rates
First, it’s a common misconception that Federal Reserve interest rate changes drive the mortgage market. In fact, these rate cuts apply to short-term interest rates, and they typically have little to no direct effect on fixed-rate mortgages. That being said, adjustable rate mortgages (ARMs) may be more sensitive to these sorts of rate changes. In fact, depending on the terms of your loan, those of you with ARMs might see lower rates when the next time your loan resets.
The Treasury’s plan to drive down mortgage rates
Second, while it’s true that the Treasury is interested in driving 30 year fixed rates down into the 4.5% range, rumor has it that such loans will only be available to purchases, and not for individuals interested in refinancing. Of course, if fixed rates for purchases do go that low, refi rates are likely to follow at least partway.
Deciding when to refinance your mortgage
Of course, there are other considerations that go into deciding when to refinance your mortgage. For example, if you’re currently upside down on your home (i.e., you owe more than it’s worth) then you’re likely out of luck regardless of where rates go from here. But assuming that you’re in a position to actually refinance, I suggest that you run the numbers through a refinance calculator and your own analysis for yourself and see what makes sense.
I’ve previously written about deciding when to refinance your mortgage, and that information is applicable now as it was then. Your first step should be to head over to figure out your breakeven point and your total savings from refinancing. The former will tell you how long it will take to recover your closing costs — the sooner the better. The latter tells you how much interest you’ll save if you pull the trigger and refinance. With this info in hand, you’ll be able to make an informed decision. The second step is to compare specific offers you might be able to get from different mortgage lenders, including your current lender. You can request up to 4 free quotes from mortgage lenders competing for your business using the form below.