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Should You Refinance Now? What If Rates Keep Heading Lower?

12 September 2010 4 Comments

Mortgage rates are are serious lows.  I have many people telling me these days that rates will never be this low again.  Therefore, it’s a great time to refinance.  While, it might indeed be a good time to refinance, I often remind these people that people have been saying the same thing about rates now for years.  They’re never going to be lower, until they are indeed lower a year later.

So, should you refinance?  Maybe.

I’m in the camp that thinks rates will keep going lower.  In an effort to somehow drum up demand and to create annual re-fi booms, I think the government will continue to suppress rates.  While 3% rates on a 30-year fixed mortgage won’t fix the housing market, it could save you some money each month.

The problem with continuously refinancing, of course, is that most people add a few thousand in closing costs onto their mortgage.  Last time I refi’d, I essentially added $4500 onto the balance of my loan.  By saving just over $200 a month on my payment due to the refinancing, it was easy to calculate that I’d break even in about two years.  Ok, that’s fairly simple.

Again, the problem is refinancing every couple years continuously adds on money to your loan and essentially starts you over at a new 30-year term.

So, here’s an idea… if rates keep going lower, to where 30-year fixed mortgages are going under 4%, consider refinancing to a 15-year mortgage with a rate possibly somewhere in the 2% range.  Get a better rate, but keep yourself on track to get out of debt completely.  Now, there’s a good idea.

I’ll have my eyes on such an opportunity in the coming years.


  • TaJ said:

    Yeah, when I bought a house earlier this year, rates were at historic lows. Now they've set new, lower, historic lows.

    Refinancing to 2-3% would be too good a deal to pass up if it happens. Never miss a chance to reduce the cost of things you're going to do anyway.

    It's almost ridiculous that we're even talking about 2% mortgages as a possibility.

  • micromillion said:

    Rates could go lower, but I think this is another bubble developing. The lower rates haven't helped the housing market all that much, 75% of mortgage closing are refi's.

    The unwritten story is all of those people who are currently in adjustable mortgages are also getting the benefit of lower rates, without closing costs. I've got an ARM that just adjusted to 3.00%. This is lower than a current 1-year ARM.

    As rates go lower, you get less savings. So, if you find the right property I wouldn't necessarily wait too long, you can't get the bottom.

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