Should I Refinance My Mortgage Now or Wait Until Jan 30, 2008?

by: Brian.Brady on January 22, 2008 14:53:48 2 comments »

"Should I refinance my mortgage now that the Fed has lowered the overnight lending rate .75% or should I wait to see if they cut rates more, when they meet on January 30, 2008?"

decisions

That question was asked of me today by one of my favorite borrowers. I met Jim, a sales representative in Paradise Valley, Arizona, in 1994. Jim was one of my first customers, responding to a mailer I sent about VA Interest Rate Reduction Loans (VA IRRL). We reminisced about the 8 loans I funded for him, these past 14 years. Jim traded up, in 1995, to a home in Ahwatukee. He traded again, in 1998, to a home in Paradise Valley. He has turned a $83,000, zero-down home loan, purchase into a seven-figure home, with a $400,000 mortgage. He's four years into a 5.25% 5/1 ARM and wondered if it was time to pull the trigger. Here's what I told him:

"Jim, you've always done well by seizing opportunities when they came. You bought a home in Ahwatukee because it was affordable, not because you were greedy. You stretched to get into the Paradise Valley home because you felt it was affordable, not because you were greedy. So, I'll ask you to be consistent here and make this decision based on affordability rather than greed. You've had your eye on the 5.25% rate for a few weeks; today it became affordable. I think mortgage rates could come down a smidgen more, in the next week. Maybe I'm being greedy by suggesting that you hold out for that last little drop"

I shared this chart from Loan Toolbox, with Jim:

ltb

I don't believe this chart is omniscient BUT I have been wrong about the short-term trend for mortgage rates. Remember readers, I worked as a securities broker so I can get caught up in the trading patterns of mortgage rates. I'm generally biased towards locking mortgage rates when indecision prevails. In Jim's case, he can get that 5.25%, 30 year fixed-rate mortgage, for about $6800. While I think he could save about $2,000 in closing costs if he held out a few more days, the mortgage bonds market could reverse course and add two or three thousand dollars to his closing costs quickly.

Sometimes, a bird in the hand is worth more than two in the bush. In Jim's case it was about balancing affordability and greed. Affordability won out; we locked Jim's mortgage rate today.

Would you like to have this kind of conversation about your mortgage refinance? I can be reached at (858)-699-4590. I think we have about a week to talk.

2008 Real Estate Market Outlook
Why Does My Realtor Keep Promoting
Life Goes On
San Diego Mortgage Rates Report: November 26, 2007
Mortgage Market Update: Week of November 12, 2007