Housing News

Should You Refinance at 5.14 Percent?

Here’s what you should consider

Businessweek recently reported a surge in refinancing applications after mortgage rates set a record low in Freddie Mac’s 37-year tracking. The most popular 30-year fixed rate mortgage fell to 5.14 percent from 5.19 percent last week while the 15-year fixed type fell by 0.01 percent from 4.92 percent. Such plunge brought a rush in mortgage applications that included a stream of refinancing submissions from homeowners caught in the property downturn.

So is this the right time to file that refinancing form and take advantage of lower monthly payments?

Who should act now? The low rates are too enticing that anybody trapped in a punishing ARM needs to act quickly. For those wanting to convert their adjustable rate mortgages (ARMs), take the opportunity to lower your monthly payments. There was a period when the 5-year jumbo rate had an interest below the 30-year fixed mortgage so it was smart to hold on their loan instead of refinancing.

Applicants need to remember that to fully benefit from refinancing, they must have high credit scores (usually 700) so that lenders won’t impose additional hidden costs.

Who should wait then? If you’re waiting for the Fed’s target of 4.5 percent then you have to wait for a little while. Such low rate can only be achieved with bolder federal measures that may not take place during the first quarter of next year. It’s a risk that homeowners must take should they want easier terms. The best things to do are to advice your lender about your target rate and wait for the rates to hit below 5 percent. Just be sure that the paperwork is moving by following up on your lender once you’ve decided to strike a deal. The tons of applications may overwhelm the lender who’s now facing more applicants compared a year ago.

Service costs and insurance fees may also rack up the monthly payments of borrowers. If application fees, insurance and origination expenses are carried over to the principal, the mortgage rate based on the principal will also augment. If the difference between your existing mortgage versus your desired borrowing rate is only narrow, wait for further lowering of rates to minimize the effects of service and insurance expenses.

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