Refinance your home….now?
We’ve been thinking about refinancing our home to take advantage of lower interest rates. We missed the bottom which seemed hit at around 5.48% national average for a 30-year fixed-interest mortgage near the end of January. Today’s rate of 6.04% would still be OK for us as we’re currently at 6.8% (on one loan, we have another loan which was a dumb mistake that I’ll explain later.) The question, is: Is this the right time? The answer for us appears to be a definite “probably” (how’s that for hedging!)
With fed discount rate cuts, our first thought was to refi now! But, if you’ve been watching the trends you see that mortgage rates actually went up after the last Fed rate cut. So, I dug in a little deeper and found more information.
- At Mortgage-X you can find graphs for the historical trends of the interest rate, to get a deeper view of where things are headed. The trend is definitely up since the Fed began cutting rates.
- For another view, take a look at this BankRate graph. The trend here is also up since January but you get more of a sense of the fluctuations that have happened recently. The very near-term trend seems down, but if past rate cuts are any indication, we’re about to head up again.
- Then I found this great article from the Federal Reserve Bank of San Francisco entitled: What is the relationship between the discount rate and mortgage rates? What I found in this article is:
- The Discount rate is the rate that Federal Reserve Banks Charge for overnight loans between “depository institutions.” This is the rate that the Fed is always fiddling with.
- The mortgage-rates are determined by the market. That is, standard supply/demand rather than a governing body.
- The discount rate and the primary mortgage rate trend in the same direction but in the short term are not directly correlated. This means that over time, they’ll look nearly the same, but the Fed’s rate drop means nothing to mortgage rates in the near term (darn!)
- Mortgage rates tend to be correlated with long-term interest rates like the 10-year Treasury bond rate. This Yahoo Finance graph shows the 3-month trend of the 10-year Treasury bond to be trending down.
So, our data so far shows that we may want to wait a little while as things seem to be going in the right direction. We also see bonds trading down which should mean bond yields (ie: the bang for your buck you get for buying this thing) are going up. This seems to counter our trends mentioned above.
And we go deeper….
Bankrate’s analysis of the mortgage market basically tells us it’s a little unpredictable in the short-term what’s going to happen. It looks like they’re waiting for the bottom of the mortgage crisis.
So, while we might be able to see lower rates in the future, I think that we will do a refinance soon. We have a good credit rating and we’d like to be able to lock in a lower rate soon. With the market as volatile as it is and with a general malaise over the economy, I’d like to get us set now rather than later. If mortgage rates drop below these nearly historic lows, we can always try again (of course, accounting for the cost of the refi in our calculations).
So, what do you think? Are you considering a refi? Is my analysis useful or am I missing something?
