- The Washington Times - Friday, June 19, 2009

In mortgage circles, it is being called “Black Wednesday.” I’m referring to May 27, when mortgage rates shot up about 0.50 percent in one afternoon. Despite the outrageous paperwork necessary to get a simple refinance closed, consumers have been refinancing in droves since the abrupt drop in rates began last November.

Recently, a qualified borrower with a $300,000 loan could be lucky enough to lock in a 30-year fixed rate below 5 percent with no points. As of this writing, the same borrower might find a rate of 5.75 percent.

Recent economic news has been better than expected. This is creating an impression that the recession might be waning, which could spur inflation. This perception, coupled with the very real fear that $800 billion in stimulus money will also spur inflation, has made investors wary of long-term fixed investments, such as mortgage-backed securities.

Hence, rates have shot up a bit. Does this kill the refinance wave? Have those who floated their rate lost the bet? Have those who sat on the fence lost an opportunity?

It’s hard to tell. While rates won’t stay down forever, there’s still a lot of evidence that rates could come back down. The federal government has tremendous resources to manipulate markets, and its policy has been to make efforts to keep rates down in order to stimulate the housing market.

Furthermore, there is no irrefutable evidence that our economic difficulties are over. While we have had some better-than-expected economic reports, there’s no consensus that we’re out of the woods yet.

Meanwhile, there are still some deals out there for the right homeowners. Consider the following:

c Lenders have implemented the government’s plan to allow certain eligible homeowners to refinance to market rates, even if they have little or no equity.

c Despite the recent jump in rates, we are still enjoying 30-year fixed rates below 6 percent for qualified borrowers.

c Adjustable-rate-mortgage rates have remained low. For folks who are reasonably certain they will be moving within five or seven years, today’s 5/1 and 7/1 ARM rates are terrific.

I recently locked in a former neighbor on a 5/1 ARM at 4.375 percent with very little to pay in fees. They are retiring in three years and relocating. Even though the 4.375 rate can change after five years, my clients will be moving before that happens.

On the other hand, existing ARM holders who are facing rate adjustments in the next 12 to 36 months should seriously consider refinancing to a fixed rate if they plan on holding the property for many years to come.

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

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