Can you still get a good mortgage refinance rate? With mortgage rates climbing nearly a full percentage point over the past month, many people who had been hoping to refinance their mortgages to a lower rate are wondering if they've missed the bargain boat.
The Mortgage Bankers Association reports that weekly applications to refinance a mortgage have dropped more than 60 percent from their peak in early April, when 30-year fixed mortgage rates were at an all-time low. Back then, the MBA's weekly survey had 30-year rates as low as 4.61 percent; last week, they were at 5.57, with most of the increase coming over the last four weeks. Other surveys are trending even higher; the weekly Bankrate survey, released Thursday, had rates at 5.74 percent, their highest since November.
All this has many borrowers wondering if it's still worthwhile to refinance. Others are holding on, hoping that the increase will be only temporary, and that rates will soon once again settle into the sub-five percent Promised Land.
Mortage rates still relatively low
On the first issue, most experts say the answer is yes, depending on what type of mortgage the borrower currently has. Dan Green, a Chicago-based loan office with Mobius Mortgage and author of the popular The Mortgage Reports blog, notes the current rates are still well below the norm of the past few years.
"Even though most rates are in the mid five's (percent) right now, that still represents a good savings for consumers whose rates are around six and half," he said. "They're not in the fours, but it's still a good deal for a lot of homeowners out there."
Bigger advantages on bigger mortgages
Refinancing at current 30-year rates becomes more attractive with jumbo or other large mortgages, said Dave Mully, a senior loan officer with Midtown Financial in Northville, Mich. A borrower with a mortgage in the $300,000 - $1 million range might only need to shave a half point or three-quarters of a point to make up the approximately $2,500 in closing costs in a reasonable time, while someone owing less than $150,000 might have to pick up as much as a full point to cover more modest closing costs.
"If you're going to drop half a point (on a jumbo mortgage), you're going to make up $2,500 pretty quick," he said.
ARMs may offer lower rates
Customers can also still get good rates if they're willing to consider adjustable rate mortgages (ARM) or shorter loan terms, Mully said. He said proprietary lenders, which hold onto a loan instead of selling it to secondary lenders like Fannie Mae or Freddie Mac, often can offer more flexibility on terms.
"If someone wants to get into a 4 7/8, five percent mortgage, they're going to have to look at the three, five, seven-year fixed adjustable rate mortgages," he said. He said such arrangements can be a good deal for homeowners who have an ARM or zero-interest loan that is about to reset, or for homeowners who don't expect to remain in the home for more than five to seven years.
"A lot of people, if they can get themselves a five or seven-year rate, and buy themselves some time, they're happy to do that," he said.
He said many customers are happy to take an fixed low rate for five or seven years to buy themselves some breathing room, then refinance again at an opportune time down the road.
Will rates go back down?
Another possibility is to wait and see if mortgage rates go back down. Although this is a gamble, Green noted that the Federal Reserve has expressed the view that rates of five percent or below are optimal, and that it is willing to intervene to bring rates into a desirable range.
Whether it can bring rates back below five percent is an open question, given other factors such as improving economic signs that are pushing rates back up. However, Green said that rates are so volatile these days - often changing as often as four or five times a day - that consumers who want to get the best rates need to prepare now to be ready in case they drop again.
"If you have an ARM that's adjusting, if you have a loan you need to refinance, get your application in right now," he said. "That way, when the rates do go down, you're ready to pull the trigger."
The Federal Reserve's Board of Governors' is scheduled to meet again on June 23-24, when it is expected to consider whether to take further action to keep rates low.