Is It Time to Refinance?

Mar 20th, 2009 @ 4:41 PM by Alden Smith

The Fed announced Wednesday that it is planning to purchase up to $300 billion in treasury securities over the next six months.  It will also purchase another $750 billion of mortgage backed securities between now and the end of the year.  The 10-year treasury dropped 50 basis points on this news.

This caused a plunge in rates on fixed mortgages.  According to Bankrate.com, these rates dropped to 5% after the news.

It would appear that now would be a good time to refinance.  If you’re considering this, SmartMoney.com suggests you look at these signals:

If home prices are still falling in your area, don’t wait to refinance.  Although rates may drop, the value of your own home is dropping also, and it may reach the point where you would be ineligible to refi.

Carefully consider refinance costs.  It isn’t cheap to refinance.  Plan on paying the same closing costs as you would when you buy a new home.

If you have a prime adjustable-rate mortgage, and it is about to reset, you may find that it resets to a rate as low as 3.5%.  ARM’s are tied to 12 month average of the one-year Treasury bill.  Currently, these are well below 1%.

If someone offers you a rate that seems much lower than everybody else, there’s probably a catch.  Every conventional loan is written to Fannie and Freddie standards.  If you’re being offered a lower rate than usual, chances are good that it comes with a shorter lock-in period.  Remember, it can take over four or five weeks to close on a loan.

Do your due diligence before considering a refi.  You may make out, or you may well get burnt.