Can you believe what mortgage rates are these days? As of this post Bankrate shows a 30-year fixed at around 4.6% and a 15-year down to almost 4%. That’s pretty amazing when you think about what rates were just five years ago. Back then you were probably looking at rates closer to 7%. So, all this mortgage rate talk in the news has a lot of people thinking about refinancing their mortgage. I just wrote about that yesterday and made an argument that even though rates may be much lower today than your current rate it still might not be beneficial to refinance.
I know firsthand. We are stuck with two mortgages right now and it doesn’t make much sense to refinance either one. On our old house that we’re trying to sell we’re paying 6.75%. That sucks, and while a lower rate would certainly trim some money from the monthly payment, the few thousand we’d be paying up-front to do the refinance and/or the points we’d initially be paying would be a waste if the house does sell inside of a couple years before we break even. So, it’s a bit of a gamble. If it takes a long time for the house to sell, we may still come out ahead. If the house sells in the coming months we could lose out on some money.
Then we have our current house which was purchased less than a year ago. Rates were pretty good last year and we got this one for 5.25%. Even though it’s good, I’d love to be paying 70 fewer basis points to be sure. Even if we were able to get one of the lowest rates the savings would only be about $50-60/month, which stretches out the break even point pretty far. But there’s a good chance the numbers wouldn’t work out to show enough equity for a traditional refinance anyway given the wonderful Michigan real estate market.
So, I get to sit on the sidelines while people are taking advantage of these record low rates. What about you? Are these low rates getting you to think about refinancing, or have you already?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
My house has gone down in value by about $100k so I'm nervous to try and refinance even though the rates are great. I had an independent appraisal done and they suggested I wait until my value increases. In my neighborhood there are about 15 houses in foreclosure so that's killing my value. It's very frustrating!
@Amy - Yes, you do most of the time. When I refinanced in late 2008 the bank sent an appraiser to recalculate the value. My home lost value, but not enough to create a PMI situation or cause problems with my loan. It sounds like you're on the edge, though. You might be able to get your own appraisal done before refinancing, but that's no guarantee the bank's appraiser will find the same value.
We refinanced about 2 years ago, combining our 1st and 2nd mortgage into a 15yr mortgage at 6.75%. Right now we have about 22% equity in our home so we don't have PMI which is nice. We've thought about refinancing but are worried that you have to have another assessment done on the house and it might bring the value down from about 2 years ago. We have excellent credit scores so I imagine we could get a 4.5% pretty easily on a new 15yr mortgage.
Do you know if you have to do another assessment when you refinance?
The rates are great right now but getting qualified is not easy. I tried to refinance with the company that holds the 2nd on my home. They didn't want to get into the first position because the debt to income was below 75%.
We're refinancing our house right now. For us, it was the right thing to do because we needed a better interest rate and we got that so it served us well.