Last week, interest rates dropped more than a quarter of a percentage point. Although I had just written out the check for the first mortgage payment on my newly refinanced loan, I found myself picking up the phone to call my lender.
In about ten minutes, he confirmed that he was able to streamline refinance my brand new mortgage and drop the interest rate a half percentage point. By my count, this will be our third refinance in less than eighteen months.
What’s going on here? Interest rates have dropped to a new low, driven by the concerns bond traders have that a war in Iraq is going to severely damage the fragile American economic recovery.
If war breaks out, economists believe people will likely sit at home watching television than go out and spend money. If that’s true, it’s going to deliver a tough blow to businesses that are already suffering from last year’s recession.
Already, consumer sentiment is the lowest it has been since the Persian Gulf War. All of those polled are feeling fairly pessimistic about the future of the economy. If you’re worried about a war, worried about possibly losing your job, and worried about the fact that your retirement account is about a third less than it was three years ago, you’re not likely to go out and blow a few thousand bucks on non-essentials, like a fancy vacation. That’s why so many airlines and other travel-related companies are on the verge of bankruptcy.
Of course, there is the silver lining. All this doom and gloom has opened up a window for home buyers and homeowners who are paying more than 6 percent on a 30-year mortgage. Interest rates are now at 42-year lows. That last time interest rates were this low, John F. Kennedy was running for President.
Many consumers have already refinanced their mortgages. Some have done it twice, or even three times.
The problem is, interest rates won’t stay this long forever. During most of the 1990s, interest rates hovered around 7 percent. And, that’s probably where they’ll go back to once we’re through whatever war we end up fighting and the economy improves.
Once that happens, you’ll be kicking yourself for not refinancing again when you had the chance. Well, now’s the time to get off your rocking chair, pick up the phone and call your lender.
Start by asking your lender if you can streamline refinance. A streamline refinance is when the lender simply lowers the rate on your mortgage without changing the terms or length of your loan. You should only have to pay a few hundred dollars for this. (My streamline refinance cost $500.)
You won’t get the very lowest rate out there, but you should do better than the rate you currently have, and you won’t have to go through the trouble or cost of a full-blown refinance.
If you can’t do a streamline refinance on your mortgage, start shopping around to find out who is offering the best deal. I like to start at BankRate.com.
If you can, try to get lenders to price loans with zero points and zero fees. It’s the easiest way to compare lenders on an apples-to-apples basis.
Once you find the lender with the best deal, ask him to fax you the loan application, or stop by on your way home from work and pick it up. You want to lock in your rate as fast as possible.
If you can manage it, or if your payments will be about the same, choose a 15-year mortgage instead of a 30-year loan term. Your interest rate will be even lower because you’re choosing a shorter-term loan and you’ll be able to save hundreds of thousands of dollars in interest.
If you can’t afford to lock into a 15-year mortgage, go with a 30-year loan, but use your monthly savings to prepay your mortgage each month. You’ll shave thousands of dollars off the cost of your loan. (If you have credit card debt, pay this off first, since it’s non-deductible debt and generally carries a higher interest rate.)
If you’ve never refinanced your home before, it’s not that complicated. You don’t need an attorney. You just need to know where rates are and what deals other lenders are offering.