Low rates bode well for refinancing options

As of Feb. 20, interest rates on 30-year fixed rate mortgages are at 5.92 percent, which is a drop compared to 6.73 percent in mid-July 2007, according to www.bankrate.com and www.freddiemac.com.

Think beyond a new rate

If you refinance, keep your long-term goals in mind. Years ago, refinancing came down to one factor: If you could knock a couple of percentage points off your interest rate, you did it. But today, it’s a bit more complex. There are three aspects to consider:

• how much money you can save per month;

• lender points and fees; and

• how long you will live in that home.

Let’s say refinancing frees up $150 for you each month. Sounds great, right? But it’s not so great if the mortgage company tacks on a point up front (think $1,500 to $5,000, depending on the amount of your loan) and a few hundred dollars in fees. If you’re only going to stay in that home for a few more years, refinancing is hardly worth it.

If you plan to live in that home for many years, then it’s a different story. You may be poised for substantial savings.

This is a simple example, of course. If you are getting out of an adjustable-rate mortgage and refinancing into a fixed-rate mortgage, or moving from a 30-year loan to a 15-year loan or vice versa, you’ve got more variables to think about.

No predictions

How long rates will stay this low is anybody’s guess. No one can predict the financial future, but historically, mortgage rates have often moved up or down in relation to the yield of the 10-year U.S. Treasury bond.

This is because the average mortgage is either refinanced or paid off within 10 years of origination, according to www.thetruthaboutmortgage.com.

When bond yields go down, mortgage interest rates tend to go down, and vice versa.

So in the near future, it might help to look at what happens with Treasuries. Bond investors have often gauged mortgage interest rates by adding about 1.7 percent to the current percentage yield of 10-year Treasuries.

In November, 10-year Treasury yields dipped below 4 percent, according to www.bloomberg.com.

The bottom line is to think before you make a move.

Before you get out that pen and sign anything, talk about your options for refinancing with a qualified mortgage specialist, and be sure to talk to your personal financial adviser to see how your choice to refinance relates to your overall financial plan.

David M. Compere. CFP, CTFA, is the president of Longview Capital Management LLC in Springfield. He is a Representative with ING Financial Partners Inc., member SIPC, and may be reached at david.compere@ingfp.com.[[In-content Ad]]