Mortgage Rates are at Historic Lows Again – Is it Time to Refinance?

How low can they go?

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I just moved into a new home last August and the interest rate I got on a 30 year fixed rate mortgage, with no points, was 4.625%. Now, just 10 months later, the average rate on a 30 year is just 3.68%*. It’s hard to believe but I may need to refinance already!

Recent economic uncertainty has led to a ‘flight to quality’ where some investors have been buying bonds, especially U.S. Treasury bonds. Among other factors, mortgage rates tend to move up and down with the interest rate on the 10-year U.S. Treasury bond. Forces of supply and demand cause the strong buying interest in treasuries to drive prices up and yields (interest rates) down. This is called an inverse relationship; the interest rate goes down as price goes up (and vice versa). For example, $200 in interest on a $10,000 bond yields 2%, but if the bond appreciates to $11,000, the same $200 in interest is only a 1.8% yield.

Just because interest rates are lower does not mean everyone should refinance. It’s important to consider how long you have been paying on your current mortgage, what the monthly payments will be, and how long you plan to stay in your house.

Also, closing costs typically run about $3,000. If the refinance saves you $150 per month, it will take you about 20 months to break-even. Lastly, it pays to shop around, and a good place to start is your current mortgage holder. Some lenders even offer no-closing-cost refinances that charge you a slightly higher interest rate to avoid paying closing costs out of pocket.

Right now you may be paying too much interest every month, so at least check it out.


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