Is Now the Time to Refinance?

IS NOW THE TIME TO REFINANCE?

Interest rates on 30-year fixed mortgages are still notably low.

The earliest numbers from 2013 have remained lower than they were this time last year, leading a number of homeowners to consider (and re-consider) their options.

In January, interest rates on 30-year Fixed Rate Mortgages (FRM) dropped to 3.38%. This is down 0.5%  from a year ago at this time. Many have already taken advantage; the Mortgage Bankers Association reported a 15.2% increase in mortgage loan applications last week, while refinancing saw a 15% bump from earlier weeks. In fact, 82% of all applications were attempts to refinance.1

Freddie Mac is reporting 15-year FRMs are down to 2.66%, while 5/1-year ARMs and 1-year ARMs were down to 2.67%. A year ago, the rates were 3.17%, 2.82%, and 2.76%, respectively.2,3

Keep your eye on the big picture. While it might seem to your advantage to take your interest rate down a few percentage points, you need to know the answers to these three questions: 1) How much will you really save per month? 2) What are the lender points and fees? 3) How long will you be living in your current home?

For example: Knocking off a hundred dollars or more from your monthly payment might seem like a great idea, but how long are you planning to stay in your current home? As part of your agreement, your mortgage company could add a lender point (potentially thousands of dollars) and hundreds more in fees, making a refi short-sighted if there’s a new house on your horizon.

On the other hand, if you’re planning on staying in your home for several years, a
refinance has the potential for big savings. If you’re moving to a 15-year loan
from your 30-year loan (or vice-versa) or from an Adjustable-Rate Mortgage into
a Fixed-Rate, a long-term homeowner has a different scenario to consider.

Rates won’t stay low forever. There’s no way to tell how long the trend will continue. An April 2010 headline in the New York Times proclaimed “Interest
Rates Have Nowhere to Go but Up.” At that time, the average rate for a 30-year
fixed mortgage was 5.31%. By the end of January 2012, the rate had fallen to
3.98%.2,4

Consider your next move carefully. Refinancing may be an option, but it’s always a good idea to be fully informed before making such an important financial decision. Call our office to determine how such a move might affect your financial future.

Sincerely,

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

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Investment Advisory Services offered through Kohlhepp Investment Advisors, Ltd., a Federally Registered Investment Advisor. Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Kohlhepp Investment Advisors, Ltd. and Cambridge are not affiliated.

Citations.

1 - articles.chicagotribune.com/2013-01-17/business/chi-average-30year-mortgage-rates-hold-near-338-20130117_1_mortgage-rates-fixed-rate-mortgage-average-rate  [1/23/13]

2- freddiemac.com/pmms/index.html?year=2012 [1/23/13]

3-freddiemac.com/pmms/ [1/23/13]

4– www.nytimes.com/2010/04/11/business/economy/11rates.html [4/11/10]

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