(October 6) – “Home-mortgage rates fell to their lowest level in nearly a year, the latest milestone in a sustained period of declines for the cost of financing a house. So, for homeowners, is it time to refinance again?, asks Patrick Barta, writing in today’s Wall Street Journal.
“Not for many people, say the experts. But interest rates are getting lower and lower, and for some borrowers, especially those with adjustable-rate mortgages, it could be time to consider renegotiating a loan to lock in a lower rate.
“According to mortgage purchaser Freddie Mac, the rate for an average 30-year fixed-rate mortgage fell to 7.83% Thursday, the lowest since November 1999. The rate was slightly below last week’s average of 7.88%, and well below this year’s high of 8.64% in May.
“At their current rates, mortgages are still too costly to spur the kind of refinancing boom that occurred in 1998, when mortgage rates fell below 7%. At one point in 1998, refinancings made up 69% of all mortgage applications. Economists say rates would have to drop to lower than 7.5% before many people with 30-year fixed-rate loans would refinance.
“Even so, some refinancings are starting to make a comeback. Currently, nearly 21% of all mortgage applications are for refinancings, compared with about 13% at the beginning of June.
“Who is refinancing? People with adjustable-rate mortgages, or ARMs, especially one-year ARMs. A one-year ARM is a mortgage that charges a lower-than-normal interest rate for the first year, then “adjusts” to a different — and often higher — rate a year later, depending on market conditions. Typically, one-year ARMs are priced according to yields for one-year Treasury notes, with an extra spread added, although the total increase is usually capped at about two percentage points.
“The popularity of one-year ARMs surged in the past 12 months, as more borrowers sought to offset rising rates.