By Jonathan Clements
Is the mortgage-refinancing opportunity of a lifetime slipping away? I suspect the answer is “yes”—and it isn’t because I can forecast interest rates. Rather, the Federal Reserve has announced it’s cutting back on its bond purchases, and that will likely mean higher interest rates—including rates on new mortgages.
“Interest rates are no longer at 60-year lows,” notes Keith Gumbinger, a vice president with HSH.com, a mortgage-information provider. “We got as low as 3.44% for a 30-year conforming loan in December 2012. We’re above those historic lows by almost a full percentage point, but rates are still very favorable.”
To make refinancing worthwhile, you typically need to shave your mortgage rate by at least a full percentage point. With 30-year loans available today at around 4.4%, you may not achieve that sort of savings by swapping your old 30-year fixed-rate mortgage for a new one. But you might get there by refinancing with a 15-year mortgage, which will charge around 3.5%. Or you could opt for a hybrid mortgage that is fixed for, say, the first five years and adjusts every year thereafter. A 5/1 hybrid, with an initial interest rate today of around 3.1%, might appeal to those who plan to move in the next five years or so.
Mr. Gumbinger adds that, if you couldn’t refinance before, you might qualify now. For instance, if you had been out of work but recently found a job, lenders might look more kindly on you. In addition, you might have more home equity, thanks to rising home prices, and that could also help your application.
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