For homeowners who have been waiting for interest rates to fall even further before refinancing, it might be time to pull the trigger on a deal. Rates are moving up—and could stay higher for a while, experts say.
The average rate for a 30-year fixed-rate mortgage climbed to 4.08% for the week of March 22, up from the record low of 3.87% it hit in February, according to
Freddie Mac. Rates on 15-year loans were up to 3.30% last week from the record low of 3.13% reached earlier in March.
While rates still are below where they were a year ago, some economists say they are likely to keep rising throughout 2012 and into 2013. That means your window of opportunity to lock in a rock-bottom rate might be closing soon.
Freddie Mac,
Fannie Mae and the
Mortgage Bankers Association all are projecting that rates will keep ticking higher this year and beyond. Freddie Mac and the Mortgage Bankers Association predict the average rate on a 30-year fixed-rate mortgage will reach 5% next year.
The biggest culprit in rising rates: the spike in yields on 10-year Treasury notes over the past two weeks, which mortgage rates generally track. This comes as investors who stashed their money in Treasurys as a safe haven are beginning to sell and move into riskier holdings now that the U.S. stock market and European economy are looking a bit healthier.
Rates could go even higher if the Federal Reserve's so-called Operation Twist, which temporarily pushed down long-term interest rates, ends in June as planned, or if inflation rises, eroding the value of bonds.
Good News, Bad News
"It's a good-news, bad-news situation. The economy seems to be finally getting its legs back under it, and as a natural course interest rates are going to be back up, too," says Keith Gumbinger, vice president at mortgage-data provider
HSH Associates. But if the fledgling economic recovery falters, rates could hold steady or go back down, he says.
If you wait until the end of the year to refinance, and the average 30-year rate goes up to 4.7%—as Freddie Mac projects—you will be paying $1,877 more per year on a $400,000 mortgage than if you refinanced at last week's average rate.
An adjustable-rate mortgage might be a good choice if you plan to move soon, since it allows you to lock in an even-lower rate for a fixed period, typically five years, and presumably sell your home before it goes up.
Refinance deals vary depending on your financial situation and location, but borrowers with excellent credit scores typically qualify for rates below the national average.
Not all homeowners should consider a refinance, of course. If you aren't planning to stay in your home for long, refinancing into a 15- or 30-year loan—or even an adjustable-rate mortgage—could cost you more in the end, since you might not recoup the one-time costs that come with refinancing, says Doug Lebda, chief executive of
LendingTree.
Such costs typically include an appraisal, credit check and processing fees from the lender, altogether typically 2% to 4% of the loan amount, LendingTree says. That is on top of any so-called points, or origination fees.
Pulling the Trigger
Expect your refinance to take 60 days or longer to close, compared with 30 days before the housing crisis, Mr. Gumbinger says. If borrowers rush to refinance, lenders could experience a logjam that could slow down processing times even more. But it isn't likely that a further slowdown would jeopardize a borrower's ability to lock in a rate, he says.
John Ruben, a 54-year-old chief operating officer at a hotel workers' union, checked mortgages rates online multiple times a day for months before pulling the trigger and refinancing his $321,000 home in Bethlehem Township, N.J., earlier this year.
He had calculated that refinancing would be worth it only if he cut a percentage point off his current 5% interest rate on a 30-year fixed-rate loan. When rates dipped, he refinanced at a 4% rate through a mortgage banker—saving about $150 a month on his payment.
Says Mr. Ruben: "I'm glad I locked in when I did, because now they're going up again."
Source:
Wall Street Journal
