Fixed rates hit new lows, ARM rates head higher!

Five weeks, five new records. According to Freddie Mac, last week’s fixed mortgage rates dropped again, for the fifth week in a row.The 30-year fixed-rate mortgage fell .04 to a bargain-basement 3.49 percent and the 15-year fixed-rate dropped .03 to 2.80. Keep reading! The useful stuff comes next.

Time to fix your ARM loan?

The one-year ARM was up .02 from last week, increasing to 2.71 percent from 2.69 percent, while the five-year ARM also went up .05 to 2.74 percent. When the economy is ugly, short term rates often rise as long term rates fall. This tendency has been intensified by the Federal Reserve’s efforts to lower 30-year mortgage ratesby buying and selling Treasury notes (for more information, see our article explaining how the Federal Reserve affects mortgage rates).

What does it mean to you? Don’t panic -- If you have an ARM, your rate is unlikely to spike tomorrow. Unless you have immediate plans to relocate, though, consider “setting it and forgeting it” while fixed mortgage rates are such bargains. In this case, you’re not necessarily refinancing to save money today – you’re doing to keep from losing money tomorrow.

Don’t be trigger happy

If you refinanced last year and are paying 4.5 percent now, you may be feeling disenchanted with your almost-new mortgage. Hey – it’s a home loan, not a smart phone; replacing it every time something new and improved hits the market is probably not a great idea.

Do your homework

Refinancing to today’s best mortgage rates requires some careful thought. Ask yourself these questions:

  • Is the mortgage rate I qualify for lower than the one I have? Advertised rates may only apply to borrowers with very high credit scores and low loan-to-values.Get custom mortgage quotes from competing lenders and see what they offer you.
  • Do I expect to keep the property long enough to recoup the costs of refinancing? LendingTree’s Mortgage Checkup can help you compare your current loan to available refinance programs. In addition, LendingTree’s Refinance Calculator tells you how long it takes for the extra cash flow to cover refinancing costs. 
  • Is my goal to pay less interest or lower my monthly payments? Remember that you restart your mortgage repayment every time you refinance. That means that if you have a 30-year home loan for three years and then refinance to a new 30-year mortgage, your term is 33 years altogether. That’s not necessarily bad (you may need a low payment today more than a faster payoff tomorrow), but you should be aware of it.

Refinancing isn’t as fun as purchasing the latest gadget, but it might be even smarter than buying a smart phone.

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