WASHINGTON — With mortgage interest rates setting record lows almost every week for more than two months, two questions naturally come to mind: How low can they go? And should I refinance — again?
This week rates fell to levels that many people in the mortgage business thought they would never see. Freddie Mac reported on Thursday that the average rate on a 30-year fixed-rate loan was 4.44 percent, with 0.7 of a point in prepaid interest (one point equals 1 percent of the loan amount). Loans fixed for 15 years also hit a record low, 3.92 percent, with 0.6 of a point, on average.
Frank Nothaft, Freddie Mac's chief economist, said in a report issued this week: "The ability to lock in a principal and interest payment at below 5 percent for 30 years is rare enough. The fact that a 30-year fixed-rate mortgage can be obtained for 4.5 percent, or a 15-year mortgage for 4 percent is an amazing opportunity for borrowers."
However, Greg McBride, senior financial analyst for Bankrate.com, said: "The pool of refi candidates has been dwindling because we have been below 5 1/2 percent for the past year. People may not want to invest the time and money in another go-round."
He added that, in markets where values are still declining, an appraisal that was high enough to support a refinance just eight months ago may not be at the same value now.
But, homeowners should not assume they wouldn't qualify for a new loan, said Malcolm Hollensteiner, mid-Atlantic regional manager for PNC Mortgage. "There's a large percentage of the population that doesn't feel they are eligible to refinance, but they are," he said.
Refinancings now constitute most of the mortgage market, accounting for 78 percent of all loan applications nationwide, the Mortgage Bankers Association reported this week. And many refinancers are taking the opportunity to move into shorter-term loans that carry a lower interest rate and build equity faster. That's a particularly attractive option for people who hope to pay off their mortgage before retirement.
Economists at Freddie Mac reported this week that during the second quarter, 30 percent of borrowers who were refinancing out of 30-year fixed-rate loans chose new fixed-rate loans of 15 or 20 years. That's the highest level of term-shortening the company has seen in six years.
Unless you had a high rate to begin with (6.5 percent or more), switching to a shorter-term loan boosts the monthly payment but can save a lot of money over the duration of the loan.
Might rates go even lower? Perhaps, but probably not by much, said Celia Chen, senior director at Moody's Analytics. "I don't think they're going to fall much further; they're at a record right now," she said. "And even at this low rate, it doesn't seem to be doing much to support the housing market."