By Peter McDougall
Rates on 30-year fixed-rate mortgages are down to 5.34% this week. That's the lowest they've been in close to half a century, reports Freddie Mac (FRE), and consumers are scrambling to take advantage.
Refinance activity had been already on the rise, according to the Mortgage Bankers Association , but the most recent move this week by the Federal Reserve to lower the federal funds rate and to buy up large amounts of mortgage debt have added fuel to the fire.
TheStreet.com Ratings analyst Philip van Doorn says the Fed's rate cut "will hopefully spur the market to start moving some of the vast inventory of new houses." However, van Doorn cautions that the new rates won't help homeowners whose "homes are now worth considerably less than their outstanding balances."
The surge in refinancing has driven many consumers online to investigate their options. "manybanking.com has seen a significant increase in traffic by people using our rate tools," says James R Freiman, the site’s general manager. The site offers up-to-date information on interest rates ranging from mortgages and home equity loans to savings accounts and certificates of deposits. Enter your ZIP code on manybanking.com's mortgage section to view offers from lending institutions near you.
For instance, in the New York metropolitan area, lenders are offering rates on 30-year FRMs ranging from 5.125% from Pathfinder Bank (PBHC) to 5.5% from Wells Fargo (WFC). Rates on 15-year FRMS are even lower, with offered rates around 4.82% from Alliance Bank (ALNC) and 5.0% from JPMorgan Chase (JPM).
Deciding to Refinance
If you currently hold an adjustable-rate mortgage, refinancing with an FRM will allow you to lock in historically low rates for the life of the loan. However, whether to refinance your current FRM generally depends on how long you plan on living in your home. The refinancing process carries closing costs that can total anywhere from 2% to 4% of your overall loan.
Unless you live in your home long enough for the savings from that lower mortgage rate to pay off those upfront costs, refinancing might not be right for you -- regardless of the historically low rates.
To help with deciding whether refinancing is the right move, check out the Refinancing Calculator at manybanking.com. For tips on how to use the calculator, check out How to Calculate if Refinancing is Worth the Cost.
Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.