I came across an article this morning that speaks volumes about the attractive yet and narrow opportunities for refinancing in the current lending environment. I believe we will see rates increase by ~1/2% in Spring 2010 (more insight on that to come in a later post), so now is the time to act on refinancing.
RISMEDIA, February 4, 2010—Mortgage experts from Bills.com, one of the leading resources for free, objective and expert money advice, advised that consumers considering a home refinance should begin the process now. Further, the company reported that the most frequently asked question of its Ask Bill expert advice center concerned home refinancing rates and recommendations.
“Market conditions have aligned to make this a perfect environment for home refinancing,” said Ethan Ewing, president of Bills.com. “Low rates and compelling opportunities to refinance into shorter term loans have arrived at the same time as large consumer demand.”
Ask Bill is a free service that allows consumers to ask any money question of human experts and receive personalized advice to their inquiries. One of the most frequently asked questions of 2009 concerned interest rates for home refinancing.
This high level of interest on behalf of consumers corresponds to favorable market conditions for refinancing. Specifically, these factors include:
1. Interest rates continue to hover around all-time lows, making it sensible for anyone carrying a higher rate interest loan to consider refinancing. With some exceptions, a 1/2-point to a 1-point drop in rate will generally make refinancing worthwhile.
2. Low fixed interest rates make converting from an adjustable rate loan into a fixed 15- or 30-year loan a smart move. Even if the adjustable payment is currently lower than a fixed rate payment, when rates rise again the monthly payment on an adjustable rate loan will quickly leapfrog a fixed rate loan.
3. The current difference between fixed 15-year and 30-year interest rates is significant, making refinancing into a shorter-term loan a compelling opportunity. This can save hundreds of thousands of dollars over the life of a loan and shorten the time to payoff with sometimes only a slight increase in monthly payment.
4. FHA efficiency mortgages provide consumers with an opportunity to refinance into a loan that will help pay for home efficiency improvements. These loans are meant to provide consumers with a way to make energy efficient improvements to their home as part of an origination or refinancing. This is a great way for homeowners to cost-effectively lower their utility bills through basic home repairs.
5. Those homeowners whose equity situation has steadily deteriorated, leaving them with little, no or negative equity in their homes, should ask their lender or broker for help. Most have some flexibility with government programs aimed at reducing rates for homeowners in weak equity positions.
“This interest rate environment provides opportunities for those trying to escape high interest rates as well as those making savvy long-term financial decisions,” continued Ewing. “Anyone considering a home refinance should move quickly to lock in rates now.”