Refinance Calculator
The recent sharp drop in mortgage interest rates is creating a window for homeowners nationwide to refinance and providing an incentive to people who have been holding back on buying a house.
In the past week, mortgage rates for 30-year fixed loans have dropped to as low as 5.5 percent, down from about 6.5 percent a week ago, according to Bankrate.com. Some lenders are advertising rates below 5 percent for 15-year loans.
But some Austin mortgage brokers said rates could jump again because of volatile financial markets.
Brokers said that except for a few days in February, rates haven't been this low since 2003.
"Volatility has been the overall trend in our industry over the past year," said Dan Reagan, a certified mortgage planner with Cornerstone Mortgage Co. "I like the idea of taking advantage of these rates now rather than later. There is a chance that this refinance miniboom may be short-lived."
The trigger for the drop was a move last week by the Federal Reserve to buy up to $600 billion in debt and assets from Fannie Mae and Freddie Mac, the biggest buyers of mortgages.
Lower interest rates could help the battered housing market, as well as provide relief for homeowners with higher fixed-rate or adjustable-rate mortgages.
"If you have been on the fence about refinancing or buying a new home, then these incredibly low interest rates should help push you in the right direction," said John McClellan, branch manager at Supreme Lending in Austin.
On a $165,000, 30-year loan, a drop from 6.5 percent to 5.5 percent cuts the monthly payment more than $100, to $936. On a 15-year loan, the difference is about $90, according to Bankrate.com's calculator.
Wendy Dabrusin, a senior loan officer with Supreme Lending, said she is contacting clients who had been interested in refinancing but could not because rates weren't low enough to make a meaningful difference.
Now, she said, it could pay off. "If they have a 7 percent rate, or even 6.75 percent, it's probably going to be worth it to refinance," she said.
For homeowners with adjustable-rate mortgages that are due to reset within a year, it is absolutely a good time to refinance, even if the new rate isn't a full point lower, she said.
But Dabrusin and other mortgage brokers said homeowners also should consider how long they plan to keep the house. Closing costs can add several thousand dollars to a refinancing and should be added to any calculation of savings.
David Reed, president of CD Reed Mortgage Bankers, said a simple calculation can show whether refinancing makes sense: Compare your current rate with a potential new one, and then figure the monthly savings. Divide the closing costs by that figure, and the result is the number of months needed to recoup closing fees.
It typically takes three to five years to recover the costs, Dabrusin said.
Reed and others warned that lenders have imposed more stringent standards on borrowers, whether first-time buyers or homeowners refinancing a loan.
"Buyers today know that lenders will require decent credit, some down payment and an income that can support a house payment," Reed said. "If you're a buyer, especially a first-timer, you couldn't have waited at a better time in my opinion. Home prices are stabilizing, rates are at record lows, and traditionally the real estate market cools down in the winter months."
Finally, Reed advised: "Don't get greedy. If you can refinance today at 5.5 percent and you're currently at 6.5 percent, don't wait out for another one-eighth percent. You might just bet the wrong horse and rates go back up."
Peter Sajovich, owner-broker with RE/MAX, said lower rates — which he thinks will stick around for months — will go a long way to help the housing market.
"Keep the mortgage rates here, then you'll see the mortgage market rebound quickly," Sajovich said. "In Austin, it's going to really spur real estate activity."
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Source:
http://www.statesman.com/business/content/business/stories/realestate/12/02/1202refi.html
