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Is Now the Right Time to Refinance?

Mortgage rates are still low. The earliest numbers from 2013 have remained lower than they were this time last year, leading a number of homeowners to consider (and re-consider) their options.

On January 17, interest rates on 30-year FRMs dropped to 3.38%. This is down 0.5%  from a year ago at this time. Many have already taken advantage; the Mortgage Bankers Association reported a 15.2% increase in mortgage loan applications last week, while refinancing saw a 15% bump from the previous week. In fact, 82% of all applications were attempts to refinance.

With interest rates down across the board, it’s easy to see why homeowners still so low: Freddie Mac is reporting 15-year FRMs are down to 2.66%, while 5/1-year ARMs and 1-year ARMs were down to 2.67%. A year ago, the rates were 3.17%, 2.82%, and 2.76%, respectively.

Keep your eye on the big picture. While it might seem to your advantage to take your interest rate down a few percentage points, you need to know the answers to these three questions: 1) How much will you really save per month? 2) What are the lender points and fees? 3) How long will you be living in your current home?

For example: Knocking off a hundred dollars or more from your monthly payment might seem like a great idea, but how long are you planning to stay in your current home? As part of your agreement, your mortgage company could add a lender point (potentially thousands of dollars) and hundreds more in fees, making a refi short-sighted if there’s a new house on your horizon.

On the other hand, if you’re planning on staying in your home for several years, a refinance has the potential for big savings. If you’re moving to a 15-year loan from your 30-year loan (or vice-versa) or from an Adjustable-Rate Mortgage into a Fixed-Rate, a long-term homeowner has a different scenario to consider.

Rates won’t stay low forever. There’s no way to tell how long the trend will continue. An April 2010 headline in the New York Times proclaimed “Interest Rates Have Nowhere to Go but Up.” At that time, the average rate for a 30-year fixed mortgage was 5.31%. By the end of January 2012, the rate had fallen to 3.98%.

Where advantageous rates are concerned, what comes down usually goes up. While you do have time to get on board with these low rates, nobody knows when they might take off again.

Consider your next move carefully. Refinancing may be an option, but it’s always a good idea to be fully informed before making such an important financial decision. Work with a qualified mortgage specialist to determine your options for refinancing, and then speak to your financial consultant for the big picture on how such a move might affect your financial future.


About the Independent Financial Advisor

Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.

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