- The Washington Times - Thursday, February 17, 2011

Mortgage giant Freddie Mac reported recently that mortgage rates have jumped to their highest levels since April 2010. While the U.S. economy has a long way to go before it can be labeled healthy, recent positive economic reports have resulted in a sell-off in U.S. Treasury bonds, which has had a negative effect on mortgage rates.

Still, I’m inclined to believe that many homeowners who have not refinanced haven’t missed the boat.

Thirty-year fixed-rate mortgages were at their lowest levels in the fall, when they were hovering around 4.25 percent to 4.50 percent with few or no closing costs. Let’s take a look at what I might be quoting as of this writing.

I’ll assume the borrower has a $300,000 loan, excellent credit and at least 25 percent equity. He is not interested in obtaining cash out; his objective is to lower his interest rate.

The best “apples-to-apples” approach when comparing rates is to look at a rate that carries no points, origination fees or closing costs. These rates will indeed be a bit higher than a so-called “bought-down” rate, but a homeowner can compare rates and programs easily if the fees associated with the loan are zero.

  • 30-year fixed rate - 5.25 percent. If a homeowner is paying more than 5.50 percent on an existing loan, a refinance may be in order. Because there are no closing costs, even a small reduction in rate will make sense. If the homeowner’s objective also is to lower the monthly payment, a new 30-year loan with a lower rate could result in a significant payment drop.
  • 20-year fixed rate - 5.125 percent. A lot of folks are refinancing to shorter terms. The shorter the term, the lower the interest rate. These programs are good for homeowners seeking the lowest and safest rate whose objective is to pay off the mortgage more quickly.
  • 15-year fixed rate - 4.75 percent. A borrower refinancing from a 30-year loan to a 15-year loan can expect a better interest rate and a higher monthly payment - but he is likely to shave many years off the term of the loan.
  • 7/1 ARM - 4.50 percent. A 7/1 ARM offers an initial rate for the first seven years and adjusts annually thereafter. Despite the maligned reputation that adjustable rates have received in the media, ARMs can be the right program for some folks. Homeowners who plan to sell their home within the initial rate period can benefit by refinancing to an ARM, especially if no closing costs are paid. An example of this type of homeowner is one nearing retirement who plans to sell his house, downsize or relocate upon retiring.
  • 5/1 ARM - 4.25 percent. While a 5/1 ARM carries a fixed rate for just five years, it may be appropriate for some homeowners. A rate that’s fixed for five years at 4.25 percent is cheap money.

Yes, mortgage rates have risen, but homeowners who think they have missed the boat should look again. If your rate is near or lower than the rates quoted above, take comfort that you have a pretty good rate.

Send e-mail to henrysavage@pmcmortgage.com.


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