- The Washington Times - Friday, February 20, 2009

Q. I have been seeing all the news reports about lower mortgage rates and refinancing. We currently have a 4.50 percent rate on a 7/1 ARM that’s due to adjust in 2012. It seems to me that the government’s bailout plan includes lower rates in the coming months, so I don’t understand why there is such a rush to refinance now. I think the hype is being created by people in the mortgage business to generate unnecessary refinances in order to pad their pockets. Since you own a mortgage company, I suppose you disagree with me. Do you care to comment? –-

A. I’m happy to comment. Yes, I disagree with you for several reasons.

While there are plenty of unscrupulous lenders out there trying to generate unnecessary loans, there are plenty of homeowners who can gain a substantial financial benefit from refinancing in today’s interest-rate environment.

I printed out my personal loan pipeline and counted 42 refinances closed since Thanksgiving. Each borrower received a 30- or 15-year fixed rate at 5.25 percent or lower. Each borrower had one or more of the following objectives:

• Refinance a fixed rate of 5.75 percent or higher to a lower fixed rate.

• Refinance an adjustable rate into a fixed rate.

• Take cash out in order to make home improvements.

In each case, I analyzed the numbers to determine whether the refinance met their objectives before making a recommendation. Indeed, I have spoken with many homeowners who are waiting on the sidelines for a better rate down the road.

While the waiting strategy may ultimately pay off, it’s certainly poses a risk. While the federal government is taking enormous measures to jump-start the economy and get credit markets moving again, there is no guarantee that mortgage rates will fall lower in the coming months.

Your assertion that the “government’s bailout plan includes lower rates” is inaccurate. It is true that part of the stimulus package includes the federal government’s purchase of underperforming assets, such as delinquent loans, but the plan doesn’t simply lower mortgage rates. Mortgage rates move up and down according to market forces.

My recommended strategy is simple. For folks with adjustable rates worried about higher rates in the future, a refinance makes sense because, despite the possibility of even lower fixed rates in the future, eliminating interest-rate risk is never a bad thing.

For folks who currently have fixed rates seeking a lower rate, simple number crunching determines whether today’s rate environment is low enough for a particular homeowner to benefit. In case rates do fall further in the future, I make sure that the cost of any current refinance is minimal, allowing the borrower to take advantage of even lower rates and, at the same time, lock into today’s already historically low rates.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at [email protected]

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