Homeowners who missed the refinancing boom of 2002-03 have another crack at it while mortgage rates hover below 6 percent.
"The planets are aligned right now,"said Anthony Hsieh, president of LendingTree.com, an online mortgage site.
Hsieh pointed out that the prevailing rate of about 5.75 percent for a 30-year, fixed rate mortgage isn’t far above the all-time low of 5.21 percent registered in June 2003, making it a good time to refinance. The odds are that rates will rise later this year.
"The Federal Reserve has promised more rate increases," Hsieh pointed out. While the Fed action pushes up short-term rates, "long-term rates are bound to move up, too," making refinancing more costly, he said.
Robert Coles, 37, a management consultant with International Business Machines Corp., has just finished refinancing the mortgage on his four-bedroom home on an acre of wooded land in York, Maine.
Coles bought the Cape-design house two years ago, making a 10 percent down payment and taking out two mortgages, one for 80 percent of the purchase price and the other for 10 percent. He made separate monthly payments on the two mortgages.
"I wanted one payment every month as opposed to two, and at a lower rate," he said.
Coles was able to refinance the two outstanding mortgages, which carried rates of 7 percent and 6.125 percent, for a new, 30-year fixed-rate mortgage of 5.875 percent, he said.
Keith T. Gumbinger, vice president of HSH Associates, a mortgage information service based in Pompton Plains, N.J., said homeowners who bought even a year ago might be attracted to refinance at today’s rates.
"A year ago, a 30-year fixed was probably carrying a rate as high as 6.46 percent," he said. "Today, it’s about 5.75 percent."
The monthly payment for a $200,000 mortgage carrying a 6.5 percent rate would be $1,264, while the monthly payment on the same mortgage with a 5.75 percent rate would be $1,167.
A homeowner who refinances will, of course, have to pay certain fees to do so, including appraisals, title search and closing costs.
"But with a 30-year time horizon, they have time to get back any money they would have to spend" for the refinancing, Gumbinger said.
He noted that some of hybrid mortgages written during the earlier refinancing boom — especially loans that locked in a rate for three years, then began adjusting with the market — are approaching that adjustment stage.
"This week in 2003, a hybrid would have had a 3.74 percent starting interest rate, adjusting this year to 5.74 percent," Gumbinger said. "That could be a bit of a pinch for some people."
Rather than face future rate increases, these homeowners, too, would be good candidates to refinance to a 30-year, fixed rate loan, he said.
Holden Lewis, a mortgage expert at Bankrate.com, an online financial service based in North Palm Beach, Fla., said the key to deciding on a refinancing is how long the homeowner expects to keep the house.
"Even if the rate goes down just a little, if you think you’ll be in the house a long time, it might pay to refinance," he said, especially to lock in a fixed rate for 15 years or 30 years.
Lewis said that some good candidates for refinancing are:
People with outstanding home equity lines of credit.
Home equity lines of credit carry variable rates that are tied to banks’ prime lending rate, currently 6 percent.
"There are people out there who took out a home equity line of credit at, say, 4 percent or 5 percent, that’s now pushing 6 percent or 7 percent," Lewis said. "Some might want to refinance their mortgage and pay off their outstanding mortgage and their line of credit."
People paying for mortgage insurance or carrying a "piggyback" loan.
Home buyers who put down less than 20 percent of the purchase price on a home often are required to pay for private mortgage insurance. To avoid such insurance, they can take out so-called piggyback loans like Coles did.
"You might be able to pay off that piggyback and the first mortgage by rolling them together into a new mortgage," Lewis said. If the home has appreciated, the new loan will cover 80 percent of the home’s value and private mortgage insurance won’t be needed, he added.
People with adjustable-rate mortgages.
"Some homeowners are starting to get nervous and thinking, 'Maybe I should lock in a fixed rate,'" Lewis said.
Lewis said the rule of thumb used to be that a homeowner had to be able to lower the interest rate on a mortgage 2 percentage points to make a refinancing worthwhile, but that’s not necessarily the case anymore.
"Now you need to look at what your closing costs are, what your savings (on monthly payments) are and how long you intend to stay in the house," he said.
A calculator to help homeowners weigh those variables can be found at www.bankrate.com