Last week, there was a 20% surge in mortgage activity driven primarily by refinancing activity from record low rates. The mortgage banker’s association said seasonally adjust refinances were up 26% while home purchase loan activity was up 10%.
Something’s Working
While I tend to be skeptical of reports indicating the economy is improving/growing given all the negative news and sentiment (ya know, Europe imploding, 45 million Americans on foodstamps and continued layoffs), evidently, the low-rate policy that has been killing income investors is certainly rewarding to borrowers.
Rates are at historical lows below 4% on a 30-year and approaching 3% on a 15-year (mortgage rate table for your area) and with people looking to preserve cash and shore up their finances, a no-cost refinance is starting to make a lot of sense to people where they can close without any out of pocket expenses while realizing lower monthly payments from their refi.
Am I Missing Out?
I’m not a proponent of just going out and buying a home because rates are low. After all, home prices could fall further and saving $100 a month pales in comparison to closing costs and capital losses. However, if you CAN refi and you haven’t, it’s something to seriously consider. I also took advantage of the low rates recently and closed on a set of college campus houses with a partner. We had to get a commercial loan at a higher rate, but apparently our 5.5% is way better than the 7% or so commercial loans were fetching just a year or two earlier.
I wrote a post recently on no-cost refinancing which I’ve been heavily considering since I don’t want to blow another $4,000 on yet ANOTHER refinance, but for me, it only makes sense to go down to a 15 year from my 30. I don’t want to extend my loan out again now that I’m a few years into my 30. However, even with the 3.5% or so I could get on a 15 year WITH the lender paying all my closing costs, our monthly payments would be higher by a few hundred bucks so I have to convince the wife it’s worth it.
I guess between personal home purchases, refis and investment properties, there are plenty of avenues to take advantage of the low rates. The question is whether you’re missing the boat.
Are You Benefiting from Low Rates?
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I got a call last week to refinance down to 2.625% all fees included for a 5/1. I could not believe it since I just refinanced to 3.125% from 3.625% 4 months ago! Sign me up!
Nice! Is that on primary or rental property?
We are doing one last refi, moving to a 15yr @3.5%.
We were on track to be done with the mortgage in 5 years, but decided to free up a bit of cash flow, and will probably pay this off over 10 years, unless of course, rates go high enough that the risk free return is higher than 3.5%.
Mmm, that’s the one I’ve been eyeing up. A 15 year at 3.5%.
We re-financed last year to a 15-year 3.375% mortgage. Our base payment went up by $160 but our application to principle went up over $400 per month. That will definitely help in the net worth statements moving forward, and it puts me right in line with a goal that I had previously set to be mortgage free by the time my kids start college.
Nice swap! Big bump in principal paydown; must feel… rewarding!
I’m not taking advantage – I dont own a home, but am looking at buying over the next 12 months, so hopefully rates will continue to stay in the basement.
Who knows, maybe you’ll get another 10% off the sale price as well if you’re talking another year!
We really need to refi our place. The fees are so high from what I’ve seen, but I’ll try again. This time I’ll ask for no closing cost.
Yeah, look into it; most of the banks I found here offer no-cost refis:
https://www.darwinsmoney.com/no-cost-refinance-companies/
Man, I’m with you. There are so many variables to consider. The biggest one that gets overlooked–in my opinion–is that when you refi, you just made the outgoing bank a ton of money. I have nothing wrong with banks earning a profit, but if I refinance a year into a 4 percent loan to get a 3 percent loan, the interest I paid wasn’t 4 percent….it was a ba-zillion percent because of the way the amortization table works (banks get more interest up-front and less later).
I’m careful about refinancing because of that. when I find a good rate I stick to my loan and create methods to pay it off quickly (often take out a 30 year for flexibility and make payments to get rid of it in 15 or less).
AJ – This is a misconception. A no point, no closing mortgage charges the stated rate regardless of how long you hold it. If you paid points, of course the points you already paid are now spread over less time, but that’s a different issue. I see articles suggesting that a 6% mortgage is really say 180% if you pay it off after a year, and even 93% if paid after five. Forgive me, but this is nonsense at best. It’s bad math that costs people money.
You don’t ever take your payment (or interest) and divide it by principal paid. The result is meaningless. You take your year end interest paid and divide by the average principal balance over the year. This will equal your rate.
I tend to ignore “sunk costs” or what the counterparty is doing and focus on my own NPV. If I’m just into a loan, refi’ing into a new loan at a lower rate is kind of a no-lose, especially if the lender is fronting the closing costs and I’m getting the rate to boot.
I am closing next week on a 15 year refi at 3.25%. It was too good to pass up. I purchased my home less than 2 years ago for 30 years @ 5%. My payment will go up slightly but I’ve been paying an extra several hundred a month anyways. It’s definitely win-win for my situation.
Mortgage rates in Canada are very low, but unlike the US, these rates are for 5 years only (amortization is usually 25 years, but the rate itself is locked for 5 at a time). There are also variable rate options which are very low right now.
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