The "Rate Wait Game"... Is It Really worth It?

Mr. Consumer: "Mr. Broker, I have six months left before my ARM adjusts, and I am looking to refinance out of it.  How are the rates?"

Joe Broker: "Rates are better than they have been in the past year.  For a rate-term refi. with a 720 mid-score, my best rates are running about 5.625% on a 30 year fixed today.  There hasn't been much fluctuation in the past two weeks, and it would be a great time to take advantage of these rates.  Do you have any idea what your house is currently worth?"

Mr. Consumer: "I bought it two and a half years ago for $150,000 and houses in my area were selling at $180,000 a few months ago.  My credit score is 740, so I should be able to get the rate you're talking about."

Joe Broker: "It's possible...what I suggest is that I take your information, get some comparables from my appraiser, and let's see what we can do."

Mr. Consumer: "I heard the Feds may cut rates next month, I think I'll wait to see if rates will go down."

Joe Broker: "That is an option, however 30 year mortgage rates aren't directly affected by the Federal Rate cuts.  The better indicator is the 10 year T-Bill... go to my blog on Active Rain; I explain it a little more in-depth there."

Mr. Consumer: "Well, it is an election year; I've always heard rates drop the closer we get to the election.  I have six months before my rate adjusts, so I think I'll wait until a little closer to election time.  Will you email rate updates, so I can see how much more they will drop?"...

Is it worth the risk to continue waiting to see if rates will continue dropping before taking action?  Many people that would not take $100 into a casino are doing just that.  They are gambling with one of the biggest investments that they will ever make.  With foreclosure rates skyrocketing, short-sales increasing, and house values declining, can we really afford to take the risk of waiting to see if rates might drop another 0.25% in an effort to get "the best rates possible?"  Elections do not affect rates, nor do Federal rate cuts.  The market ultimately affects the rates.  (see my blog, "How do Federal Rate Cuts Affect Mortgage Rates?")  When many areas of the country are in a declining market, we are taking a major risk in waiting to see if rates will continue to go lower.  While currently, many people's homes may hold 10-15% equity, should the market in your area drop, your equity may be lost, forcing you out of a position to refinance without having to come out of pocket with several thousands of dollars in order to refinance.  This especially holds true if you already did a post-purchase cash-out refi. on your property.  Most lender standards require that if a consumer has made an after-purchase, cash-out refi, then the refinance to get out of the ARM is considered a "cash out" also, with the maximum LTV being 90% for a conventional loan (95% for an FHA loan in most cases).  If, in your area, the home prices are declining in value, six months from now, you may not have enough equity in our home to refinance without coming out of pocket for closing, and possibly for the additional equity needed. 

 Can you really afford the risk?  If you have an ARM that is getting ready to adjust within the next year, please contact your local mortgage professional to discuss your options. 

Don't become one of the statistics...                     

Don't find yourself playing the blues...                                                  

And please, don't play the "rate wait game"... Is it really worth it?