WASHINGTON — When the Federal Reserve recently rolled out its plan to pump $600 billion into the credit markets, many homeowners and buyers might have figured that with mortgage interest rates likely to fall again, they should postpone the loan application they were contemplating.
But haven't 30-year fixed mortgage rates been hovering around 4.25 percent, the lowest on record since April 1951? Aren't 15-year mortgages just above 3.6 percent? How much lower could rates go?
Housing economists generally don't anticipate significant direct impact on mortgage rates from the Fed's move.
David Crowe, chief economist of the National Association of Home Builders, said the likely effect would be restraining increases that otherwise would occur over the coming year as the economy warms up. Amy Crews Cutts, deputy chief economist for mortgage giant Freddie Mac, said the $600 billion might only “tweak” rates downward.
Which raises the question: Does it make more sense to wait for a rate bottom that might not materialize, or to lock in rates now?
Ms. Cutts has a personal answer. She recently refinanced her home loan through a mortgage broker to 4.5 percent fixed for 30 years, cutting $100 a month from payments. She is plowing the $100 into her new mortgage, reducing principal to pay off the loan sooner. Mr. Crowe has refinanced two loans in recent months.
Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, Calif., said, “Refinancing makes sense for just about anybody with a rate over 5.25 percent,” provided, of course, that they can qualify under the industry's toughened credit and loan-to-value underwriting standards.
Some homeowners may be good candidates for refinancing in which the title, escrow, and lender closing charges either are added to the mortgage principal or are paid over time with a slightly higher note rate.
The idea here, Mr. Ogilvie said, is to reduce monthly payments — improving cash flow without laying out dollars at settlement.
Steve Stamets, a loan officer in Rockville, Md., said homeowners with 30-year loans who'd like to be debt-free faster ought to consider a refi into a 15-year term. These mortgages carry lower rates than 30-year loans, but their faster amortization requires higher monthly payments.
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