WASHINGTON (Associated Press)
Rising worries about a weak economy pushed rates on 30-year mortgages below the 6 percent mark for only the second time in more than two years.
Freddie Mac reported this week that 30-year, fixed-rate mortgages averaged 5.87 percent this week, down from 6.07 percent last week.
The following types of mortgages also showed declines this week:
* Rates on 15-year mortgages dropped to 5.43 percent, down from 5.68 percent last week.
* Rates on five-year adjustable-rate mortgages (ARMs) declined to 5.63 percent, compared with 5.78 percent last week.
* Rates on one-year ARMs fell to 5.37 percent, down from 5.47 percent last week.
Steve, can you give me an idea of how to research on refinancing our mortgage? We purchased our home about 1.5 years ago and we got 6.25% 30 year fixed. On what ground we should consider refinancing to reduce our cost?
Hi arz,
I just look at the breakeven point and decide if it makes sense. The old rule of thumb was if you could reduce the interest rate by 1%, it would probably make sense. I’d first check with your current lender to see what the costs would be for a refinance. Then I’d compare it to at least 2 other lenders. Many will offer “no cost” refinance, but it’s really built into a higher interest rate than you would otherwise receive.
But back to the breakever point, using simple numbers for a hypothetical, if you paid $1200 to refinance the loan, and your payment dropped $100/mo, you’d break even in 12 months and be ahead from there forward from strictly a cash flow point of view. If your breakeven is more then 2 years out, you want to make sure you’ll be in the house that long.
Finally, and this doesn’t apply to you, but it may others, if you have a seasoned loan, let’s say 10 years into a 30 year note, refinancing may lower your payment but you’re now 10 years further away from payoff. Also, at 10 years into a note, a larger portion of your payment is going toward equity than will be the case on the new loan.
I’m 7 years into a 15 year note on one property I own. About half of the payment pays down principle now. I like that. I don’t think I want to trade that note for a lower interest rate unless other factors make it a good deal. I only have 8 years left to be free and clear on the property and I don’t want to go back to a new 15 or 30 year note just to get a better interest rate.
So there are a lot of factors to think about. I hope this helps.
Steve