It's rare that the financial markets give you multiple chances
to save money. But as dire as conditions in the
have been, the silver lining for many creditworthy borrowers is
that refinancing your mortgage can give you fixed rates among the
lowest in history -- producing low monthly payments that
going to get pulled out from under you down the road.
Big winners, big losers
Unprecedented low interest rates have had a huge impact on
borrowers, savers, and financial institutions. For savers, low
rates have cut off a major source of income, forcing them to make
desperate moves to higher-yielding alternatives like
And for banks
, low rates have helped boost net interest income over the longer
) , and Canadian/U.S. hybrid
) all posting double-digit percentage gains in net interest
income over the past three years.
But for borrowers, the news has been mixed. Some borrowers who
are underwater on their mortgages have essentially gotten locked
out of the refinancing market, as doing so would require them to
pay back tens of thousands of dollars in
negative home equity
that they don't have. But for others who aren't dealing with
owing more than their homes are worth, low interest rates have
allowed them to consider either refinancing to create huge
savings or trading up to better homes whose prices are at
attractively depressed levels.
Just how good are rates?
For the past few years, we've seen mortgage rates repeatedly hit
new record lows. Currently, though, 30-year fixed mortgages are
under 4% -- meaning that a $200,000 loan would cost just over
$950 per month to repay
. To put that in perspective, it wasn't that long ago that
30-year mortgages carried rates of 6%, which had homeowners
making $1,200 monthly payments.
Those rates may finally be having the impact on the housing
market that the Federal Reserve hoped they would have when it cut
rates to such low levels. Both
) saw their losses narrow in the third quarter, and
(SPF) had huge rises both in new orders and in backlog units.
Admittedly, those comparisons come from unusually weak levels,
but it's still an encouraging sign.
Weighing the refinancing decision
If refinancing were as simple as just getting your bank to let
you make lower interest payments, then everyone would do it. But
unfortunately, refinancing often comes with huge closing costs.
For instance, you may have to pay mortgage origination fees,
typically around 1%, to get a new mortgage. In addition, your
bank may require a new appraisal of your home, new title
insurance, and another round of other costs such as escrow fees
and loan application charges. And if you want the
rates out there, you may have to pay points upfront.
Add up all those costs and they can end up being several
thousand dollars. Even if you'd save $250 a month by refinancing,
it can take you years to recoup those costs and break even on the
In addition, refinancing involves having to go through the
same long, involved process to get a mortgage. And if you
originally got your loan during the go-go days of the mid-2000s,
you may find that the mortgage process is far
onerous than what you went through back then, because many banks
have tightened up on credit standards, and some have upped their
standards on the amount and type of documentation you need to get
Make your move
Don't let the hassle of refinancing be an excuse not to do it,
though. If the numbers work out to make refinancing a smart
option, make it one of your New Year's resolutions to get it done
soon. So far, you've been rewarded for waiting, but rates can
only go so low before you'll have missed out on the deal of a
Dealing with your home is a big part of figuring out how to
have a successful financial plan. But you also need to know about
one shocking can't-miss truth about your retirement -- and what
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