Mortgage rates have fallen to all-time lows, and if you're thinking of refinancing, you could put money in your pocket — and your savings account.
The rate on the average 30-year fixed mortgage recently hit 3.29 percent, the lowest since the Federal Home Loan Mortgage Corp., popularly known as Freddie Mac, began surveying rates in 1971. At the same time last year, a 30-year fixed-rate mortgage was 4.41 percent.
Do you remember when mortgage interest rates peaked?
In October 1981, mortgage rates climbed to 18.62 percent
For home buyers, the rate reduction is significant. A $200,000, 30-year mortgage at 3.29 percent would have a monthly principal and interest payment of $1,026, compared with $1,154 a month at 4.41 percent. Monthly savings would be $128 a month, or $1,536 a year.
Rates on other popular mortgages have plunged as well. The 15-year fixed-rate mortgage, for example, fell to 2.79 percent from 3.83 percent a year earlier. The average points paid to lenders to get a discount on the rate was 0.7 percent for both the 30- and 15-year mortgages. For a $100,000 loan, a 0.7 point charge would cost you $700. Without paying points, the discount would disappear and the rate offered by the lender would be slightly higher.
Mortgage rates tend to follow the yield on the 10-year Treasury note, which closed at an all-time low of 0.49 percent on March 9. Although the yield has crept up since then, the full decline hasn't been reflected in mortgage rates, says Greg McBride, chief financial analyst for Bankrate.com. “Mortgage rates have lagged the move in bond yields tremendously,” he says.
The drop in mortgage rates hasn't gone unnoticed, and mortgage processors are bottlenecked, he says: “A lot of lenders aren't putting their best rates out there because they have more applications than they can handle. Some people have gotten yields below 3 percent, but they are hard to find."
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Should I refinance now?
The old rule of thumb for refinancing is that your new mortgage rate should be one percentage point lower than your current one. As with all rules of thumb, however, you need to sit down and do the math first — and assess your personal situation. Why do you want to refinance?
"People refinance for a lot of reasons,” says Keith Gumbinger, vice president of HSH.com, a mortgage information website. “Do you want a lower payment? Do you want to pay off your loan by a certain date?"