Nov 26, 2008 1:40 pm US/Eastern
Mortgage Rates Dropping - Should I Refinance?
BOSTON (WBZ) ―
With interest rates dropping, many people are rushing to get new mortgages.
BUYER BEWAREBut mortgage lenders warn, there are still a lot of desperate lenders out there, so buyer beware.
Amy Tierce of
Fairway New England Mortgage in Needham, says, "Don't just call asking for rates. Ask questions, and find out what is the best deal."
She says make sure you get a referral on a mortgage lender or broker, and get everything in writing.
Tierce says before mortgage lenders give you rates, they should be asking you about your current loan, your current interest rate, how long you plan to stay in the home, and how is your credit, to ensure you are getting the best deal.
The lowest rates are not available to everyone.
For example if your credit score is lower than 720, you're probably out of luck.
5 steps to improve your credit scoreWHAT ABOUT REFINANCING FOR NO COSTS?
Tierce says if you have a $300,000 mortgage here are two scenarios:
Scenario 1At 6 percent payments would be $1,798 a month.
If you refinanced at 5.5 percent and pay your closing costs, your payment would go to $1,703.
That's a savings of $95 a month.
Closing costs for that loan will run you $800.
So if you spent $2,800 to save $95 a month, you'll make up the cost of that refinance in 29 months.
If you think 5.5 is the bottom for the rate cuts, and will stay in your house more than 29 months, Tierce says it's worth doing.
Scenario 2
With no closing costs, Tierce says you'd pay a higher rate. So if your rate was 5.75 percent and no points and no closing costs, you would save $45 a month and it wouldn't cost you anything.
Tierce says the decision depends on your long term goals, your future, your job, and where you think rates are going.
HOW LONG WILL WE SEE THESE RATES?Tierce believes the lower rates will stick around.
"This was a fed action to get rates down, it wasn't based on any market news," she said.
Because this was a direct fed action seeking a certain result, she believes we will see the fixed rates stay in the 5's for a while because it is not being driven down by market activity.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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