Dangers in Playing the Mortgage Rate Waiting Gameby Tim Manni
Back in June when mortgage rates began to increase from their spring-time lows, we wrote a post with the exact same title as this. Despite the fact that we’re republishing it some four months later, the context still applies (emphasis added):
When mortgage rates sank to the lower end of 5% [in May], hordes of borrowers began the refinance process, eager to cash in on a lower rate. Even when the rate was close to 5%, some borrowers waited for rates to drop even lower. Now that the recent spike in mortgage rates has ended the refi dream for many, some borrowers are blaming themselves that they didn’t lock in fast enough.
“More people get burned trying to time the bottom of the mortgage market than the top of the stock market,” said HSH VP Keith Gumbinger.
Trying to predict when and how far mortgage rates will fall, “is like predicting who is going to win the World Series in January,” said Guy Cecala, publisher of Inside Mortgage Finance.
Currently, rates are at their lowest levels in months, if not years. Last week [10/07/09] we reported that:
“the average conforming 30-year fixed-rate mortgage with no points came in at an average 5.09%, among the lowest average rates seen in 2009.”
“’These low -upfront cost loans are crucial to getting more refinancers into the market,’ said HSH VP Keith Gumbinger. ‘It also allows potential homebuyers to preserve cash for a larger downpayment.’”
According to the latest issue of our Market Trends Newsletter:
“[Last] week’s 5.96% average for a 30-year jumbo FRM was its first foray below 6% since September 9, 2005.”
Low Rates Can’t Last Forever
With rates currently this low, it’s important to understand that they won’t last. If you’re prepared to either buy or refinance, don’t balk at today’s low rates thinking that they may fall significantly lower. With the Fed’s downward pressure on rates fading, conforming rates may not be this low again for a long time.
While we don’t foresee an extraordinary increase in rates anytime soon, upward pressure is just around the corner. Also, it’s important to note that even if rates do increase by half a percentage point, for example, it doesn’t mean that affordability is out of reach.
According to HSH’s Amortization Calculator, the difference in the monthly payment between a 5% and 5.5% interest rate on a $200,000 loan is $61.94. For the same loan amount, the monthly difference between a 5% and 6% interest rate is $125.46.
We offered this same suggestion four months ago, and we offer it again:
The best advice we can give is to always be prepared. If you’re interested in refinancing, have a rate in mind so if rates are trending downward, you’ll be able to lock in quickly and save. Waiting for rates to fall “just a little bit lower” can get you into trouble if rates decide to shoot upwards.