General Question

dvchuck's avatar

Now that the Fed has lowered interest rates another quarter point is it time to refinance our home mortgage?

Asked by dvchuck (230points) April 30th, 2008
Observing members: 0 Composing members: 0

5 Answers

gooch's avatar

It depends what rate and term you have now. Add in closing cost to what you owe and do an amoritization. Then compare it to where you are at now.

BCarlyle's avatar

I recently spoke with a mortgage broker friend of mine about this as well. She gave me the very general rule of thumb that it usually isn’t worth it unless you can lower your mortgage interest rate a full percentage point. Of course this really depends on how long you intend to stay in the property. If you know for sure that you will stay put for the next 28 years, it is most likely worth it. If you will likely be moving in the next 2–3 years, the expenses of refinancing may negate your reduced interest rate.

There are calculators available on the internet that will tell you how long it will take to “recoup” the expense of refinancing.

PupnTaco's avatar

Interest rates are not affected by the Fed’s prime rate.

srmorgan's avatar

Some lenders will still offer you a “no-points” or no-fee re-finance. Shop around.

As the other posters mentioned, the real rule of thumb is the spread between your current rate and your new rate. Bcarlyle says one percent or 100 basis points, I agree that this a good measure to follow.

It’s not very common anymore, but there used to be a procedure called a re-casting or the mortgage. Say you have a mortgage with Lender A, If the spread was big enough to warrant a re-finance, the lender might simply modify the mortgage to give you a lower rate overall in order to retain the loan. Now this works only if your current lender would hold the mortgage and is not just acting as a servicer of the mortgage.
In 2002, when interest rates began to fall the bank that held the mortgage on my commercial building suggested the re-cast strictly because they wanted to keep us from looking elsewhere for a lower rate. Of course, this was a business with substantial assets and a decent credit experience and differs from a home owner’s situation.

But if your original lender still holds the mortgage, it never hurts to ask..


xyzzy's avatar

1) Mortgage rates do not follow the FED rates. Many people believe this but it is not true. The 10 year treasury (TNX) is a better indicator.

2) One very important point to consider is ‘recourse’ vs. ‘non-recourse’ loan. With a non-recourse loan, if a bank forecloses on you and the house is worth 30% less than the mortgage, the bank cannot come after you for that 30%. If you refinance now, odds are you will be stuck with a recourse loan. With the way home values are decreasing nation-wide, I’d be reluctant to give up a non-recourse loan just to save a little in monthly payments.

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