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Chris Neuswanger

Dropping rates might mean its time to refinance

Friday, January 16, 2015 - Article by: Chris Neuswanger - Macro Financial Group - Message

Is it time to refinance again?

Believe it or not, it might be time to check your mortgage rate and see if it's time to refinance. The recent plunge in gas prices and the resulting economic uncertainty for oil producing nations along with a few other garden variety economic meltdowns in various stages of progression have drive investors dollars into the good ole US of A.

Like it or not, love it or at least wish you could leave it, the rest of the world still loves America (or at least loves our money).

Billions and billions of dollars are flowing into the US capital markets from about every corner of the globe. This has sent demand for US T-Bills soaring which means the price of the bonds have increased, and the inverse yield they pay dropping. As of Thursday afternoon the yield on the 10-year treasury note was about 1.79%, and it was above two percent much of last year.

Contributing to all this was the announcement by the Swiss central bank that it would stop supporting the Swiss Franc, which sent shock waves throughout the world currency traders (and made a lot of people in Switzerland a lot of money when the currency rallied against others, and for every deal where someone makes money someone else lost).

Most, although not all, mortgage rates have followed the trend of dropping rates on treasuries. The current rate for a 30-year fixed conforming mortgage is currently in the mid to high three percent range, and 15-year term loans can be found in the high two percent range. Interestingly enough, adjustable rates loans have not dropped that much and in some cases are equal or higher to fixed rates.

Mortgages with higher loan amounts over $417,000 have seem some relief as well, but are still above where they were late in 2014. The Santa Claus rally in the stock markets in December has been replaced by January gloom and doom it seems.

If you have a mortgage rate that is above the low four percent range it might be worth it to check the math on a refinance. Today it is often possible for the lender to waive some or all of your closing costs, and in some cases the lender will actually give you tax free money in the form of a credit to put towards opening tax and insurance escrow accounts to refinance if you agree to a slightly higher interest rate (often times the cost of the higher rate is less than the amount you get back, so it can be a smart deal).

Homeowners should also ask for a comparative amortization table, and check where you will be in certain periods in the future and be sure that you're not losing too much ground by starting over on a 30-yer loan. You want to look at where your balance will be in five years on your current loan vs. five years out on a new loan. If the balance on the new loan is higher because you started over on the amortization you want to take the total payment savings over that period and subtract the increase in loan balance and see if you come out ahead.

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