Rate Cuts Continue:
Is It Time to Refinance Your Mortgage?
Mark Jones
After 22 year in the banking business, what I find more often than I would like to admit is just when I think I know quite a bit about something I realize I am still learning. Within the past few days I realized that I am still learning when I believe something is a given it, as a matter of fact, is not. On January 22 the Federal Reserve made its most aggressive one-time cut to a key lending rate — the short-term rate — in more than two decades when dropping the rate by three-quarters a percentage point. Over the next two days mortgage rates followed by dropping by half of a percent.
By the end of the week, though, the mortgage rates bounced back to those that had been in effect prior to the Federal action.
Since then I have been bantering back and for the with Saco & Biddeford Savings Institution CEO/President Kevin Savage and have come to the conclusion that although there are some minor explanations, in reality mortgage rates should have filtered down.
While fielding dozens of calls about rates and telling people to be patient and let markets unwind, the Federal Reserve moved forward and again dropped short-term rates another half a percent. All that activity made mortgage rates drop a whopping eighth a percent. Hardly exciting — until your recall mortgage rates are not driven by these short-term rates that the Federal Reserve has been decreasing as much as they are key longer term rates, such as the ten-year Treasury. Nonetheless, mortgage rates should start to lower in the near future.
A little patience is needed.
Is it time to refinance? Mortgage rates have dropped significantly since September and with the potential for further decreases over the weeks ahead as markets settle we certainly may be approaching another bottom of a rate cycle. Whether refinancing is prudent for you depends on your personal situation and what type of mortgage you hold, its rate, how long it will take to recoup the closing costs associated with the refinance, and how long you plan to be in your home. As mortgage balances have gone up with housing prices, a large drop in interest rates is not needed to show a worthwhile monthly savings offering an acceptable payback. If you are one of the two million homeowners who obtained an adjustable rate mortgage due for repricing this year — or are one of millions of borrowers hoping to refinance into a less burdensome loan — then you may be the biggest beneficiary of the recent rate cuts.
Drops in short-term rates do not always immediately effect mortgage rates and seldom to the full extent of the short-term rates; learn this reality with me and give mortgage rates a little more time to respond to the current economic conditions and accompanying market adjustments. Your patience may be rewarded with an interest rate that you will be content with for the duration of your home ownership.
Please feel free to give me a call at 207-602-3359 with any questions or by e-mail at jonesm@sbsavings.com.
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