As Mortgage Rates Move Higher, There's Still Time for Refinancing

By Richard Barrington
NFNS Columnist

After a sustained decline over the second half of 2007 and the early days of 2008, mortgage rates have moved a little higher in recent weeks. The steep fall in rates sparked a flurry of refinancing activity, so it is natural for anyone who hasn't yet acted to wonder if there is still time for refinancing. The answer for many mortgage holders is yes, but it would be wise not to hesitate. The reason for this answer is that mortgage rates are still relatively low, but are once again proving how changeable they can be.

The Fall and Rise of Mortgage Rates

In July of last year, thirty-year mortgage rates were at around 6.70%. From there, they began a very significant downward march. Mortgage rates declined in five of the next six months. They bottomed out at 5.48% in January of 2008, making for a total decline of well over a full percentage point. Not surprisingly, refinancing activity reached a fever pitch.

That low of 5.48% was reached on January 24th. After that, mortgage rates reversed direction, rising in three of the next four weeks. By February 21st, they were back over 6%, at 6.04%. 

What's Next?

With such dramatic changes, the natural question is: what's next? Is this the start of a march toward 7%, or will rates subside again and spark better opportunities for mortgage refinancing?

Mortgage holders pondering this question should be advised that near-term interest rate changes are notoriously hard to forecast. However, they should take note of two things:

  • At 6.04%, mortgage rates are still much closer to the low end of their historical range than the high end
  • Inflation, which puts upward pressure on interest rates, has shown signs of perking up lately

In other words, betting on a significant drop down in mortgage rates would seem to be a bet against the odds.

Refinancing Still Looks Good For Many Mortgage Holders

The good news is that even at recent levels, the refinancing party isn't over for many mortgage holders. Refinancing makes sense when current interest rates are below the rates on the existing mortgage; how much lower they need to be depends on closing costs and other factors. Overall though, mortgage rates are still lower than they were for most of the months when existing mortgages could have been originated.

By definition, an existing thirty-year mortgage could have been originated any time in the last thirty years -- that's 360 possible months. Thirty-year mortgage rates were higher than 6.04% in only 28 of those 360 months -- less than 10% of the total. This suggests that there are still many mortgages out there that were originated at higher rates. For those mortgage holders, it is still well worth looking into refinancing.

While the party may not be over, homeowners shouldn't wait too long to join it. If there is one sure thing about mortgage rates, it's that they don't stay in one place for long.

Freddie Mac

About the Author:
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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