As we listen to the news and talk with different people about the current status of the housing market, one of the few positive things that keeps coming up is that interest rates are at all time lows. So does that mean it is time to refinance?
You may have heard the interest rate rule that if you can get a 1.5 to 2 % lower rate than your existing rate, it would pay for you to go ahead and refinance (even after paying for closing costs) in the long run. Well, there is a lot of validity in that statement, especially given the current condition of the housing market in this country. While values appear to be still declining in most areas (although they may have bottomed out already in places as well), interest rates have been following a similar trend. This, of course, is good news, if you have a higher interest rate.
A few years ago, 6 or 7 % was considered a great rate - now, however, persons have been refinancing even with existing rates lower than these. 4.5 to 5% interest rate for 30 years - are you serious? (We recently even heard of a 3.1% 5 year ARM loan) If you have good credit and a decent DTI (debt to income) ratio, you might qualify for rates like this. Granted, it is much harder to qualify for loans now, albeit land, home, or especially construction lonas, but if you do, the money you could save would well be worth any additional work it might take on your part to make it happen.
So is it time to refinance? If you qualify, and if you can save 1.5 to 2 percentage points or more, we suggest you seriously consider it. There is no telling how much longer rates will be this low, and it seems very unlikely that they could get much lower. But, of course, only time will tell...