Rates Drop Over 1% -- Are you listening?

Rates Drop Over 1% — Are you listening?

Following the Trend

Do you follow mortgage interest rates with any regularity or do you wait for the media (take your pick: TV, newspapers, Internet social media) or some kind of direct mail, such as this email, to tell you when rates are low? If you do keep an eye on rates, then you’ve likely heard of the weekly Freddie Mac rate survey. Each week, Freddie Mac (one of the government-sponsored entities that buys mortgages) gathers mortgage data from around the country and publishes the latest rates for four products—30-year fixed, 15-year fixed, 5-year ARM, and 1-year ARM.

One year ago, Freddie Mac’s survey (scroll down at that link to February 10, 2011) said that the average 30-year fixed rate mortgage was 5.05% and that the average 15-year fixed was 4.29%. Jump ahead to this week and the story is very different and very favorable: The average 30-year is 3.87% and the average 15-year is 3.16%. Keep in mind that these are just averages, and these rates generally include payment of approximately three quarters of a point (0.75% of your loan amount) in origination costs and fees. As they say, however: The trend is your friend.

If you refinanced last year and you believe that rates would need to drop one percent (1%) to justify refinancing again, then that moment has arrived. If you look at the surveys again, you will see that last year’s 5-year rate is this year’s 30-year rate. You can approach that in two ways: (1) If you took a 5-year last year and really wanted a 30-year, you should act now to lock in long-term savings, or (2) If you took a 30-year last year and can see yourself leaving your house in 2-5 years, now would be a great time to switch to a 5-year ARM.

If you need to strike a compromise between those options, give me a call and we can talk about a range of products, including 7- and 10-year ARMs. My last point on this—I’ll stress now as I have before, that if you’ve wanted to get on the path to paying down principal, there has never been a better time to refinance into a 15-year fixed.

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