Snoqualmie Pass Living - Rates Drop Again - Time to Refi?

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Maybe it’s time to refinance again?

A weekly survey released by Freddie Mac on Thursday shows that 30-year, fixed-rate mortgages averaged 3.97 percent this week, down from 4.12 percent last week and 4.28 percent a year ago.

That’s the first rate dip below 4 percent in 16 months. Rates were pushed down by the chaos that erupted on the stock market Wednesday as investors reacted to the financial malaise weakening Europe and Asia, disappointing data on U.S. spending, and jitters about the Ebola outbreak.

“We never thought we’d see a 30-year, fixed-rate mortgage below 4 percent again,” said Frank Nothaft, Freddie’s chief economist. “That’s a window of opportunity for so many people.”

Usually, borrowers refinance if they can save at least half a percentage point on their interest rate. Ultimately, the decision should turn on a number of factors, including how much they owe on their mortgages and how long they plan to stay in their homes, Nothaft said.

Moving in six months? Refinancing may not make sense, even if your rate drops an entire percentage point. The cost of refinancing may exceed the savings. Find out if your lender will charge fees or require you to pay for a new appraisal and title insurance.

Also, even all these years after the housing bust, your home value still may be so low that you may not have more than 20 percent equity in your property – in which case you’d have to pay private mortgage insurance on a new loan. On the flip side, with home prices climbing in the past two years, you may now have equity to refinance and get rid of your mortgage insurance.

As for the size of the loan, consider the difference a half-percentage-point rate drop can make on a large balance versus a small one. A homeowner would save $183 a month on a $625,500 loan if the rate is cut from 4.47 percent to 3.97 percent. The monthly savings on a $100,000 balance: $29.

Consumer advocates generally say that if homeowners see a rate that works for them, they should grab it. Just like stocks, interest rates fluctuate all day long, and the potential savings can disappear in a flash.

When the stock market went haywire Wednesday morning, for instance, the average rate on a 30-year, fixed-rate mortgage dropped by a quarter of a percentage point from where it was the previous day, said Bob Walters, chief economist at Quicken Loans. To move an eighth of a percentage point in a day is unusual, Walters said. A quarter-percentage-point drop is downright dramatic.

But anyone who waited too long could not reap that benefit. “By the end of day, we’d gone all the way back up and finished where we had finished the previous day,” Walters said. “The opportunity to take advantage of that quarter of a percent drop lasted for a very short period of time.”

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