Refinancing? Don’t wait for interest rates to ‘bottom out.’

November 18, 2011

I’m thinking I should refinance again. You said you refinanced your 15-year mortgage and continued to pay your current payment.

My house appraised at about $400,000, and my mortgage balance is about half that on a 15-year loan at 4.375 percent. I’m a couple of years into that loan, so maybe I have 13 years left. I plan to stay in my house for at least five more years.

I just heard Larry Kudlow on CNBC say that rates have not bottomed out. Do you think I should refinance, and can you recommend a good lender?

We don’t recommend mortgage lenders. To find a great one, you should talk to at least one national mortgage lender, one local lender, a credit union and a mortgage broker. Ask your friends which bankers and brokers they have used; if they had a good experience with that person or company, give them a call as well.

One advantage to you as you look for a lender to refinance your loan is that you have a great rate on your current loan; if the lender you decide to work with fails to come through, you can move on to another lender quickly.

Unlike when you are trying to buy a home, your only pressure at this time is to find the right interest rate and to close on that interest rate as soon as possible to take advantage of the reduced rate.

Although there are “experts” out there who believe that interest rates have not bottomed out, we decided to refinance our home loan to take advantage of the lower rate. We might have gotten a lower rate if we had waited, but we felt that the terms offered by our mortgage lender and the costs we were charged were an excellent deal.

With rates as they are now, you might be able to lower your interest rate by about one full percentage point. If that’s the case, and the costs to refinance are low, you can immediately take advantage of that lower rate. Then, if rates go down further, you can always consider refinancing again.

As a general rule, we try not to time the market — that’s how you miss getting a great rate. Here’s how it has worked out for us: We thought mortgage interest rates had bottomed out a couple of years ago when we started to see 30-year mortgage rates under 5 percent. We thought the same thing when rates dropped another half percent and again when they reached 4 percent.

If we had waited until mortgage interest rates bottomed out, I’d still be waiting and I’d have missed reducing the interest rate on my loan twice in the past three years.

Each time we refinanced, we worked with a lender who offered competitive costs, and at times we decided to take an interest rate that might have been a bit above the market but that allowed the mortgage broker to offset the costs involved in the refinancing with the mortgage broker contribution to those costs.

The net effect was that our mortgage interest rate might have been a tad higher, but we paid little to refinance and we saved money starting from the day we closed. We found that to be a win-win proposition.

In addition, we decided to continue making the same-size payments on our mortgage in order to keep the same end-date goal for being debt-free on our home. For those of you keeping track at home, that means we will pay off our home in roughly 11 or 12 years.

Ilyce Glink is an author and nationally syndicated columnist. Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022, or contact them through Glink’s Web sites, thinkglink.com and expertrealestatetips.net.

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