Chat Plus: Should I Refinance at 4.75?

Real estate editor Maryann Haggerty and writer Elizabeth Razzi respond to a question adapted from a recent online chat.

Alexandria: My bank is offering me a refinance rate at 4.75 percent with one point. They will still charge refinance fees. I currently have a adjustable rate mortgage that is due to reset in September. If I do nothing, it seems like I have a good chance of getting a pretty decent rate when it resets, no? I'm wondering if it's worth paying the roughly $5,000 needed to refinance.

Elizabeth Razzi: I wouldn't rush to pay $5,000 for that refinance. It's true that the indexes commonly used to peg ARMs have fallen a lot. One-year Treasury rates are only 0.45 percent, the 11th District Cost of Funds (COFI) index is just 3.125 percent, and the 12-month LIBOR is just over 2 percent, according to HSH Associates. Check your loan documents to see which index is used for your loan and what extra amount, or margin, will be added to that index to determine your new rate. Often it's about 3 percentage points. Be alert to any limits your loan places on how low your new rate might go. Rates will change between now and September, of course, but you can track them.

Maryann Haggerty: Also, take into consideration how long you plan to stay in the home when you calculate whether to pay that $5,000. For instance, if you plan to stay another five years, that new loan would have to save you $1,000 a year just for you to break even.

E.R.: Not having to jump on a refinance puts you in an enviable position. You can wait to see if fixed-rate loans get any cheaper, and pounce only when it's clearly a better deal than the rate you expect to see on your ARM in September.

The next Real Estate Live chat will be 1 p.m. Jan. 9.