Is Now A Good Time To Refinance?

Rates are at their lowest level in more than 40 years.
Sounds like a good time to refinance. Sounds like a good time to lock in lower rates.
Well that depends on what rate you are paying now and if you may sell your house soon. Normally it is worth refinancing if you can save one percentage point on your payments and you plan to stay in your home for at least another three years.

Typical mortgage rates these days are around 4.5% for an ARM and 5.18 for a 30-year fixed mortgage.

Alan Zibel answers some questions below:

Q: How much does refinancing cost?

A: It can cost several thousand dollars, but there are ways to make upfront charges invisible to the borrower.

Typically there is a fee that goes to the mortgage broker or lender, plus fees for title insurance, a new appraisal, document processing and other charges. Often, mortgage brokers or lenders can create the appearance of a "no fee" mortgage by adding the costs to a total loan amount or charging a higher interest rate.

Q: So will refinancing my home save me money?

A: That depends on how soon you want to sell.

Let's say you have a $200,000 loan. If you're able to cut your rate from 6 percent to 5 percent, your monthly payment will drop from about $1,200 to about $1,075, so you'll be saving $125 a month. If you have refinancing fees of $3,000, it would take two years to break even — so the refinancing deal is worth it only if you plan to stay in your place longer than that.

"Don't get stars in your eyes based strictly on the interest rate or based on how much money you think you're going to be saving every month," said Kevin Iverson, owner of Reed Mortgage in Denver. If it doesn't make economic sense, he says, "don't do it."

Q: What kinds of loans are out there these days?

A: Your options are far more limited than just a few years ago. The most attractive rates are on the most traditional loans: 15-year and 30-year fixed rate mortgages, and loans for borrowers who have at least 20 percent in a down payment or existing home equity.

How much lower could rates go? That's what I want to know.

If you hang on, will you get a better deal in a few months?

MSNBC REPORTS:

With the federal government's decision to slash rates, analysts discussed whether it's a good time to refinance.

"Yes, it is an excellent time to refinance, even if you've purchased a home or refinanced as little as two or three years ago, because now the rates are so much lower," said Eddie Williams of Home Mortgage Foundation.

Experts said they expect mortgage rates to fall 5 percent or lower.

"If you can get the credit, I think it's a wonderful time to think about refinancing," said Dr. Clay Singleton, of the Crummer Graduate School of Business. "In fact, I think that's what the Federal Reserve has in mind — they want us to refinance."

Singleton said not all banks are willing to lend money, so some people might have to shop around.

Home Mortgage Foundation said that, while commercial banks may not be lending as readily, there are national wholesale mortgage lenders.

"Concentrate on refinancing to lower your monthly payments, not as much to get cash out, because the lenders are going to scrutinize that a little more," Williams said. "But if you concentrate on lowering your monthly payment perhaps refinancing out of a bad loan, then I think you'll have pretty good success."

FROM THESTREET.COM:

Rates on 30-year fixed-rate mortgages are down to 5.34% this week. That's the lowest they've been in close to half a century, reports Freddie Mac, and consumers are scrambling to take advantage.

Refinance activity had been already on the rise, according to the Mortgage Bankers Association , but the most recent move this week by the Federal Reserve to lower the federal funds rate and to buy up large amounts of mortgage debt have added fuel to the fire.

TheStreet.com Ratings analyst Philip van Doorn says the Fed's rate cut "will hopefully spur the market to start moving some of the vast inventory of new houses." However, van Doorn cautions that the new rates won't help homeowners whose "homes are now worth considerably less than their outstanding balances."
Rate Options

The surge in refinancing has driven many consumers online to investigate their options. "BankingMyWay.com has seen a significant increase in traffic by people using our rate tools," says James Freiman, the site's general manager. The site offers up-to-date information on interest rates ranging from mortgages and home equity loans to savings accounts and certificates of deposits.

For instance, in the New York metropolitan area, lenders are offering rates on 30-year FRMs ranging from 5.125%