Is refinancing still an option?
The ancient proverb, "He who hesitates is lost," usually means if you wait too long you miss out. However, in the case of home refinancing just the opposite may be true. In fact, in this case hesitating could result in some reward.
For the week ending Dec. 23, the average interest rate on a 30-year mortgage fell to 4.05 percent, the lowest in 60 years. Rates on jumbo mortgages, loans above $417,000, averaged 4.61 percent.
The reason for the continuing drop in rates is that investors are turning to U.S. Treasury bonds instead of other areas of investment. This decision among investors is because of the economic uncertainty in Europe as well as the slow growth in our own economy. Since mortgage rates are tied to treasury bonds, the effect on mortgage rates is a positive one.
These low rates are great news for new buyers as well as homeowners interested in refinancing, but it gets even better. Since many homeowners already took advantage of lower mortgage rates, the demand for refinancing is declining, down 17 percent from September's peak according to the Mortgage Bankers Association. Because of this, banks are rolling out incentives to generate new business, particularly among upper end homeowners.
A number of these incentive programs are quite substantial. Some lenders are offering flat fee closing costs resulting in thousands of dollars in savings to a homeowner. Some lenders are allowing borrowers to roll the costs of a refinance, like the appraisal fee and loan processing fee, into the mortgage, eliminating out of pocket costs. Also, some lenders are eliminating previously required documentation if you refinance with the same bank and longer rate lock in periods.
Of course, lenders are not doing this out of the goodness of their hearts. Their goal is to generate not only new business, but the right kind of business. Marketing to high net worth clients will help the banks develop business relationships that could prove to be advantageous down the road when the economy starts to move.
Never-the-less, there are still plenty of homeowners who would love to refinance, but simply cannot make the cut. You need a minimum of 10 percent equity in your home and will be required to pay private mortgage insurance for refinances with less than 20 percent equity eating into the overall savings, as well as a must needed credit score of at least 740.
But if you can pull off a refinance with today's low low rates, you will save a bundle. For example, a $400,000, 30-year mortgage with an interest rate of 5.04 percent, which was available in the early part of 2011, would have cost $2,157 a month. At the current average rate of 4.05 percent the monthly savings is $236.
This is one of those rare occasions in life when putting off today what you can do tomorrow may have paid off. Call it willpower or call it procrastination but if you have resisted refinancing your home now, you may be reaping the reward of a lower rate and lower fees.
