If you haven’t jumped off the refinancing fence and put in your application, don’t worry – it might not be too late to catch the lowest interest rates in 50 years.

Primary Mortgage Market Survey Says Interest Rates Fell For Fifth Week In A Row

According to Freddie Mac’s just-released Primary Mortgage Market Survey, mortgage interest rates fell again for the fifth week in a row to reach a new low. The 30-year fixed rate mortgage averaged averaged 4.71 percent with an average 0.7 point for the week ending December 3, 2009, down from last week when it averaged 4.78 percent. Last year at this time, the 30-year fixed-rate mortgage averaged 5.53 percent. The 30-year has never been this low since Freddie Mac began its weekly survey in 1971.

The 15-year fixed-rate mortgage this week averaged 4.27 percent with an average 0.6 point, down from last week when it averaged 4.29 percent. A year ago at this time, the 15-year fixed-rate mortgage averaged 5.77 percent. The 15-year fixed-rate mortgage has never been this low since Freddie Mac started tracking it in 1991, and breaks the record low set
last week.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19 percent this week, with an average 0.6 point, up slightly from last week when it averaged 4.18 percent. A year ago, the 5-year ARM averaged 5.77 percent. The 1-year Treasury-indexed ARM averaged 4.25 percent this week with an average 0.6 point, down from last week when it averaged 4.35 percent. At this time last year, the 1-year ARM averaged 5.02 percent. The 1-year ARM has not been this low since the week ending June 30, 2005, when it averaged
4.24 percent.

“Interest rates for30-year and 15-year fixed-rate mortgages fell for the fifth consecutive week to an all-time record low while the average rate on 5-year ARMs hovered near its record set in the previous week,” said Frank Nothaft, Freddie Mac vice president and chief economist. “In addition, interest rates on 30-year and 15-year fixed mortgages thus far in 2009 averaged one percentage point below their respective average in 2008.

Nothaft noted in a press release announcing today’s survey results: “Low mortgage rates and the cumulative decline in house prices have contributed to an extremely affordable housing market and helped spur home sales this year. For instance, total new and existing home sales in October were 36 percent higher than their January low on a seasonally adjusted, annualized rate, according to the U.S. Census Bureau and the National Association of Realtors® (NAR). The NAR also reported that pending existing home sales rose for the ninth straight month in October, representing the longest consecutive gain since the series began in 2001, according to the National Association of Realtors. Seven of those months were the most affordable on record dating back to 1971, based on the NAR’s Housing Affordability Index.”

Interest Rates Are Lower. Should You Refinance?

A couple of weeks ago, I locked in on a 15-year ARM at 4.25 percent. I thought it was a pretty good rate. It’s possible that I might have been able to get 4.175 if I had waited until today. The point is, it’s a great rate and I’m happy to get it. I fully believe this will be the last loan I get on my house. It’s impossible to time the market (FYI don’t trust folks who say they can), so you just have to analyze when it makes sense for you to refinance your mortgage.

Here are some things to consider:

  1. Can you lower the interest rate on your loan? If you can’t lower the interest rate on your mortgage, there’s no point in refinancing. But there are ways to leverage the drop in interest rates beyond bragging about them at the water cooler.
  2. Can you lower your monthly mortgage payment? If you can lower your interest rate, you can almost certainly lower your monthly mortgage payment. But is that enough to consider refinancing? What if you have already paid down 5 years on your mortgage. You can lower the payment, but have to go back to a new 30-year loan. That won’t save you money. Which is why you have to ask yourself question #3.
  3. Can you shorten your loan term? We were 7 year into a 30-year amortization schedule. Our loan was originally a 5/1 ARM and then for two years, the interest rate went down because that’s where the market went. So, we were sitting pretty and prepaying huge gobs of the balance. But we decided to refinance because we can cut the loan from the 23 years we have left to a 15-year loan at an amazing rate. Beyond that, we will still be able to prepay an extra $500 per month on our mortgage, which should cut it down to about 10 or 11 years.
  4. Are you limiting risk? The other reason we decided to refinance is that both our primary loan and our home equity loan were adjustable rate mortgages. They are tied to Treasuries, and while Treasuries are low now, they will increase over time. (Yes, folks, interest rates will rise at some point from these historic lows.) So, in refinancing at this super-low rate, we’re limiting our downside risk.

You’ve Locked In Your New Mortgage Interest Rate. Should You Break The Lock?

If you just locked in your mortgage interest rate at these historic low levels, you shouldn’t have to worry much about re-locking at this point. If you haven’t locked in, you can look into a float-down option, which is where your lender gives you one opportunity to lock should interest rates fall. Since you may have to pay extra for this option, it might not be worth it. It wasn’t for us.

When would we consider re-doing our application? The 15-year fixed interest rate would have to fall another quarter of a percent, to 4 percent, for this to make sense for us. Our rate is excellent, and I’m looking forward to 2020, when our mortgage will likely be paid off for good.

What do you think?