Whither Interest Rates?

It’s been a very interesting couple of years in the mortgage market!   You can scarcely pick up the newspaper these days without reading articles about record refinance volume and near record home sales.   In fact, the low interest rate environment has made the   housing industry one of the few bright segments in this battered economy.   We’ve seen the 30-year T-Bond yields and mortgage rates drop to 40 year lows.

During the last 20 months most loans we have done are between 5 percent and 6 percent, with a few in the 4’s and a few just over 6 percent.   Most of the homeowners who are coming is have loans that are currently over 7 percent, so they are elated at how much money they can save. I even get people with 8 percent rates who should have refinanced a year ago.

I also get at least a call a day asking what I think is going to happen with rates in the future.   Usually these calls are from people who are trying to figure out if they should refinance now or wait a while, hoping to get lower rates. I always tell people that forecasting the future is the most dangerous profession I know of.   I like what someone told me one time, “There are only two types of people who predict the future: those who are wrong, and those who do not know that they are wrong.” Well, I don’t want to be wrong, but jut in case you are in that situation too, and wonder what going to happen next, here are a few thoughts that I hope are helpful to you.  

First, you cannot predict what is going to happen and neither can anyone else.    So if you’ve read articles in a magazine or newspaper about what the Feds are likely to do, or what the bond market is likely to do, or where mortgage rates are headed, forget them. Those people are just writers, as I am, and they are just guessing.

Second, many borrowers think that they are bulletproof, that somehow Divine Providence will be looking over their shoulders and making rates go just a bit lower.   I am a spiritual fellow but I do not see any evidence whatsoever that any Divinity is at work in the interest rate market.   When you are in the market for a new mortgage, you are in the same boat with about one million other people, and you’ll all get about the same deal. It might happen that rates take another tumble, but likely as not, they can spurt up, and you can’t predict when, so don’t try.

Third, forget any rule of thumb that you may have heard, such as, “You need a 2 percent drop in rates to justify refinancing.” That may apply if your loan is a pretty small one, but if your mortgage is larger, a refinance can be justified with a smaller drop.

What you should do if you’re considering a re-fi, is to find a reputable, knowledgeable person to work with, and analyze what benefits might accrue to you if you were to refinance at current rates.   Then if it makes sense, do it.   If rates have just blipped up, say .25 percent, wait a week or so to see what happens, BUT do not wait to apply. Get the ball rolling so that you are ready when the rates blip down again. If you try to wait until they blip down again, even if they do you’ll probably find another reason to defer acting. As a result, you’ll miss the boat.

You also should look at your goals to assure that the loan you select helps you meet those goals.   Specifically, you probably do not want to start all over again on another 30 year loan.

Bottom line, be BOLD, and DO IT!