Mortgage rates keep falling
More people are refinancing into short-term loans. Is this right for you?
This post comes from Marilyn Lewis of MSN Money.
Mortgage rates fell again this week, says Freddie Mac, the government-run mortgage agency that surveys the market each week.
The average price of a 30-year mortgage dropped to 4.42%, from 4.44%. Buyers are paying an average of 0.7 point for that rate. This time last year, the mortgage rate was 5.12%, which seemed pretty low back then.
Amazingly, you can get a 15-year fixed-rate loan for under 4% -- 3.90% this week, which is down from last week's rate of 3.92%. Buyers are paying an average of 0.6 point. This time last year, the same loan cost 4.56%. Post continues after video.
These are prices not seen since 1953. Since the government started keeping track in 1949, the lowest 30-year fixed-rate was 4.08%, in 1950. On the high end, mortgage rates spiked past 18% in the early 1980s. See mortgage interest rates between 1949 and 2008 in this .pdf chart by The Sarasota (Fla.) Herald-Tribune.
The action: Short-term loans
ARMs (adjustable-rate mortgages) are staying flat. Reports the Freddie Mac newsroom:
- Five-year Treasury-indexed hybrid ARMs averaged 3.56%, with buyers paying an average 0.6 point -- unchanged from last week. A year ago, this loan averaged 4.57%.
- One-year Treasury-indexed ARMs averaged 3.53%, with an average 0.7 point -- also unchanged. Last year, the cost was 4.69%.
As we've pointed out before, even at these bargain rates, the market of qualified buyers seems tapped out, and few people are snapping up 30-year mortgages or refinance loans. Also, with home prices falling and about a quarter of homes worth less than their mortgages, those owners would have to contribute cash to pay off the old loan before they could refinance.
Much of what action there is is in the short-term mortgages. USA Today reports:
Nearly a third of borrowers refinancing fixed 30-year loans in April through June picked loans with 15- or 20-year terms, according to mortgage finance giant Freddie Mac. It was the highest share since 2004.
And why not? If you've got a more expensive mortgage, there's a chance you can refinance into a shorter loan and, for roughly the same payment, build equity faster and pay off the mortgage more quickly.
Also, there seems to be a demographic push to pay off the house, with experts advising people to enter retirement debt-free. (See "Your get-ready-to-retire checklist.") The oldest members of the huge baby boom generation now are 64; the youngest are 46. From USA Today:
Peter Iche, president of Carthage Federal Savings and Loan Association in Carthage, N.Y., says he's seen an increase in people who are approaching retirement refinancing to shorter-term loans.
"They realize that they can afford a heavier payment," he says. "They're getting closer to retirement where they are willing to suck it up for a few years."
Right for you?
But is this a good idea for you? Take the big picture into account. Here are some tools to help make the decision:
- Run your retirement numbers here, to get an idea what your income will be.
- What can you afford to spend? Make home-loan affordability calculations here.
- Keep watching mortgage rates.
- Figure out if refinancing is worth it for you.
Also, it's important to consider:
- Your monthly payment may well rise if you refinance into a shorter-term mortgage. That means you'd need to show a higher monthly income to qualify than for a 30-year loan.
- You can cook up your own plan to pay off your mortgage more quickly just by stepping up your payments.
- There may be reasons why you shouldn't rush to pay off the mortgage, including the chances you'll get a better long-term payout from contributing to a work-place retirement account.
More from MSN Money:
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