Refinance now, or wait for a mortgage 'bottom'?

Ilyce R. Glink
July 13, 2012

Is it time to refinance your mortgage? It’s hard to pull the trigger when interest rates seem to fall every week. Many consumers fear that if they lock in now, rates will drop again and they’ll miss out.

But after news that both 15- and 30-year rates fell to new record lows for the week ending June 12, I can tell you one thing: If you are able to refinance, now is absolutely the time. Rates may fall again, but not by much – if they go too low, banks won’t even want to bother lending money.

Though not everyone will qualify for the lowest rates, it doesn’t take a perfect credit score to save money on a refinance. (Wondering what it does take? Read my article on the secret to a rate near 3 percent.) With the median credit score at 710, most people will qualify for low rates. “Anyone with a credit score of 700 or better will still get the lowest rate they’ve ever seen,” said Greg McBride, senior financial analyst at

And you don’t have to refinance just once. As rates keep dropping, many people are getting back on the refinance merry-go-round.

“It all depends on pretty much the swing of 1 percent,” said Doug Walker, vice president at Churchill Mortgage. In other words, when interest rates drop 1 percentage point from the interest rate a borrower has, that is a big enough incentive to get off the fence and start the refinance process.

“There’s a big pie out there [of] people that can refinance and as the days go by and people refinance [their mortgages] the pie gets smaller and smaller,” he added, noting that falling interest rates makes the pie bigger again.

Though there is a limited number of people who qualify for refinance, mortgage lenders are often refinancing the same borrowers, who refinance over and over again as mortgage rates drop each percentage point.

“At some point, rates will bottom out; it’s just hard to know when that will be,” Walker added.

For the week ending June 12, Freddie Mac reported the average interest rate for a 30-year fixed-rate mortgage (FRM) was 3.56 percent. That’s down slightly from 3.62 percent, the average for the week ending July 5, and significantly lower than this time last year when rates hovered at 4.51 percent.

This marks the 16th week that the average rate for a 30-year FRM has been below 4 percent. “Following a lackluster employment report for June, long-term U.S. Treasury bond yields eased somewhat this week allowing fixed mortgage rates to reach yet another record low,” said Frank Nothaft, vice president and chief economist at Freddie Mac. “Only 80,000 net new jobs were added to the economy last month, not enough to lower the unemployment rate from 8.2 percent.”

Rates for a 15-year FRM also fell to new lows, hovering below 3 percent for a seventh week. At 2.86 percent, the rate is down slightly from the previous week’s average of 2.89 percent. At this time last year, a 15-year FRM averaged 3.65 percent.

Five-year Treasury-indexed hybrid adjustable rate mortgages (ARMs) averaged 2.74 percent this week, down from the prior average of 2.79 percent and lower than the 3.29 percent average of this time last year.

One-year Treasury-indexed ARMs remained relatively flat, up slightly to 2.69 percent from the week of June 5, when the average was 2.68 percent. One year ago, the 1-year ARM averaged 2.95 percent.

Low mortgage rates are great for homeowners interested in refinancing and consumers on the market to buy homes, but it’s not all good news.

Unfortunately, mortgage experts say these low rates are also indicative of a struggling housing market, less-than-stellar jobs report and an overall stagnant economy, not to mention the economic instability in Europe. If it turns out that the U.S. real estate market is starting to rebound, it will be interesting to see how long the Federal Reserve Bank can keep interest rates at these super-low levels.

Ilyce Glink is an award-winning, nationally syndicated real estate columnist, blogger and radio talk show host, and managing editor of the Equifax Finance Blog. Follow her on Twitter @Glink.

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