Cost of Waiting for Lower Mortgage Refinance Rates

If you have been following mortgage refinance rates over the past month, you will have noticed that rates have dropped to near the historic low levels experienced earlier this year. Many refinancing homeowners that sat on the fence earlier this year have been quick to jump in on this latest mortgage rate drop and lock their loan.

Yet, there are others that are waiting to refinance in the event that interest rates drop even further. This is fine strategy if current refinance rates are not creating a benefit that will help you much. But for those sitting on a significant financial benefit at current rates, this could end up costing you up to tens of thousands of dollars in the long run, even if you do eventually refinance at a lower-than current interest rate down the road.

For example, suppose that you currently have a 1st and a 2nd mortgage totaling $250,000 that you want to refinance into one low fixed rate 30-Year home loan. Your current combined principle and interest (P&I) monthly payment is $1,622. You can refinance today at 5.0%, which would result in a new P&I payment of $1,342. Your total monthly savings would be $280.

You hold off on your refinance plans because a so-called “expert” on CNBC says that rates could go down further in 2010 (no one knows where rates will go next week, let alone in 6 months to a year!).

Now, assuming that things go your way and mortgage refinance rates do drop to 4.75% 6 months down the road your new P&I payment would be $1,304 per month. You will then be in a deal that is $38 per month better than if you had locked 6 months earlier. That’s great, but don’t forget that you had a $280 benefit 6 months ago, so you lost out on $1,680 in savings. It will take you 44 months to make up the difference ($1,680 divided by $38).

Is that really worth the risk? Suppose interest rates actually go up from here or take a year to drop to 4.75%? (In which case, it would now take 88 months to make up the initial savings difference).

What if things don’t go your way and refinance rates go up and don’t retreat back to even 5.0%? If you hold off on locking for a better deal and never end up refinancing, it will have cost you $100,800 in lost savings over the term of the current-rate proposed loan in this example.

Hey, everyone wants to get in at the absolute bottom, whether it be the stock market or mortgage refinance rates, but the truth of the matter is that few ever do. And the ones that do get in at the bottom can mostly be attributed to blind luck.

The moral of the story is that if you are staring at a significant financial gain with current historic low mortgage refinance rates, be very careful about holding your rate lock decision for hopes of lower interest rates. It could cost you dearly in the long-run.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

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May the Mortgage Refinance Rates be with You!