MORTGAGE refinance rates in the United States reached record low levels in 2003 and 2004. Rates rose subsequently and again declined in the summer of 2006. Rates took a borrower-friendly turn in 2007 and today, early 2008, rates are quite favorable.
In this article, we shall look at some of the lowest mortgage refinance rates possible in the market, but – before that – let’s have an overview of what mortgage refinance is all about.
Refinance Rates In The US
What is mortgage refinance?
Mortgage refinance is a useful financial tool to ease the burden of monthly payments against an existing mortgage by taking a new loan to pay back the remainder of an existing mortgage and continuing to pay back the new loan. Mortgage refinance is a good option when interest rates in the market have fallen from the rate at which the original loan was taken.
Mortgage refinance can be beneficial in different ways, such as lower monthly repayments over a longer period of time or, may be, higher monthly repayments over a shorter period of time (for early closure), or simply avail of a lower interest rate.
Mortgage refinance is a competitive business. Brokers and lenders operate in a competitive yet huge market offering interest rates within parameters defined from time to time by the Federal Reserve Board.
Since economic conditions at a given time decide interest rates, mortgage refinance rates too fluctuate from time to time.
History of rate movements
As indicated at the start of this article, mortgage refinance rates reached record low levels in 2003 and 2004, then upped and again declined in the summer of 2006.
The years 2007 and early 2008 as at the time of writing are favorable and those of you servicing a mortgage taken during the high-interest years may do yourselves a favor by considering refinance now, i.e. early 2008. Interest rate reduction of late can save hundreds of dollars a month because that is the very purpose of mortgage refinance.
Rates change, hence it is first necessary to define what ‘current’ is. Since this article is being written on 19th January, 2008, the interest rates given below pertain to this date.
Rate on 19th January, 2008
Change this week (13-19th January, 2008)
30-year fixed refinance
15-year fixed refinance
3/1 ARM refinance*
5/1 ARM refinance**
30-year fixed jumbo refinance
* This means the loan will be on the indicated fixed rate for first three years and then will change every year depending on the going rates.
** This means the loan will be on the indicated fixed rate for the first five years and then will change every year depending on the going rates.
As the above table shows, rates on all the types of mortgage refinance are on the decline on a week-to-week basis. And, of the refinance loan types stated above, the most popular is the 30-year amortization and the 5/1 ARM refinance. Now, the rates given above are the basic rates.
Brokers and lenders can work out combinations that end up in lower outgoings than suggested by the rates given above. For example, loan repayments can start with a rate of 1.25% for the first 30 days with an option for fixed payment for the first year (i.e., 12 months).
Terms of payment will be calculated on a 3% margin added to the 12-month average on monthly yields on US securities actively traded in the US securities market. APR of 7.909% can be based on a 30-year term at 1.25% and will change if the index changes after the first 30 days.
If you choose the minimum payment option, deferred interest will accrue. Howsoever complicated the above may sound, we have made it easy for you to understand by taking the offerings of a company on the basis of the above rates:
- On a loan amount of USD 150,000, monthly repayment can be negotiated around USD 475.
- On a loan amount of USD 175,000, monthly repayment can be negotiated around USD 678.
- On a loan amount of USD 200,000, monthly repayment can be negotiated around USD 633.
- On a loan amount of USD 250,000, monthly repayment can be negotiated around USD 833.
- On a loan amount of USD 300,000, monthly repayment can be negotiated around USD 999.
Now, can anything be simpler than that?!
To conclude, it should be reiterated that all figures in this article are valid and calculated on the basis of rates in early January 2008. Rates change with changing economic indicators.
Therefore, while information given in this article is reliable for early 2008, and is likely to remain reliable for some months hereafter, you should seek information updated if you happen to reference this article considerably after early 2008. You can do this by consulting a broker or a lender, using this article as your private reference.