Wait(ing) is in the past.

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Have you heard that interest rates are going to go down to 4.0%?  Yeah, me too.  Although anyone who mentions it to me, can’t really figure out from where they heard it.  It is usually “some guys at work” or “some people around” or “something on the news, that I heard might be in the stimulus package.”   And while the stimulus package may provide some relief to homeowners in the form of lower mortgage rates, my opinion is that the relief will be only for those in trouble (behind on payments, loss of job, etc.) or for those who are purchasing a home, and probably at some financial cost (future equity, repayment over time, etc). 

For the past two weeks, I have been advising my clients to wait.  Because mortgage rates jumped up on inauguartion day to around 5.375% and 5.5%, and because rates had been below 5% previous to that, it was reasonable to expect them to go down to that level.  On Wednesday, late in the day, mortgage rates dipped below 5% again, and my advice has changed. 

No more waiting.  It’s time to lock-in and take advantage of the lowest rates in history.

pic_wait

“Wait . . . wait . . . I never had a chance to [lock my rate] . . . “

Sorry about that.   I couldn’t resist.

So, what about the government buying mortgage backed securities?  Good question.  The government has been purchasing mortgage backed securities directly (and plans to continue through July 2009), but most of these assets are slightly higher than today’s current rates (in the 6’s), proof that their action may be simply keeping interest rates where they are more so than the idea that the more they buy, the lower rates will go.

And just in case you needed one more reason NOT to wait, how about some straight-forward math:

Let’s say you have a $250,000 balance on your mortgage and you have had the mortgage for a couple of years.  And your current rate is at 6.25%.  To refinance at 4.75% would save you around $250 per month . . . and for every month that you wait for lower interest rates (while still paying 6.25%), you are spending an extra $250 per month that you don’t need to be spending.  Why?  In hopes of 4.5%?  To save an additional $39 per month?  With that plan, waiting three or four months, could cost you an additional $1,000, which at $39 per month (hoping that rates go down and not up) you are looking at about 2 years just to recoup what you lost in waiting. 

Mortgage rates are at the lowest level they have been in the history of the free-world.  Wait if you want.  But it could just make you look silly (see photo of 80’s rock band White Lion above for proof).

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit http://www.hillsidelending.com.

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