Interest Rates Hover at Record Lows
Concerns about the strength of the economy have recently taken Treasury yields to new lows. This, in turn, is causing fixed-rate mortgages to remain low.
Homeowners are taking advantage of the low interest rates. The refinance index recently reached a three-year high. Also, the Federal Housing Administration (FHA) projects to receive 630,000 refinance applications for fiscal year 2012, a 23% increase from the previous 12 months.
The vast majority of refinancing is going into fixed-rate mortgages. The adjustable-rate share of mortgage activity recently fell to 4.1% of all mortgage applications.
At the same time, home prices are increasing. Zillow reported a second-quarter increase nationwide for the first time since 2007. Standard & Poor's/Case-Shiller housing price index is also reporting monthly price increases.
When thinking about refinancing, there are some important things to consider. For instance, if refinancing to a lower rate will save $125 a month, you should then factor in your tax rate. If you're in the 25% tax bracket, the actual savings will be $94 a month.*
Another consideration is how long it will take to recoup your refinancing costs. If the costs are $4,000, it will take 43 months ($4,000 divided by $94) to recover those costs. So even if you plan to move in five years, refinancing is a good option. If, however, your refinancing costs are $6,000, it will take 64 months ($6,000 divided by $94) to recover the costs, which, if you plan to move in five years, would not be a good option.
If you would like to learn more about the current refinancing opportunities, please contact me today.