Dropping Mortgage Rates And My Current Thoughts On Refinancing

My mortgage lender called me today to offer me a 5.25% interest rate if I refinanced my mortgage. This would lower my interest rate by 1%, which amounts to $200 a month in savings. The catch is that I would have to pay closing costs again, which are $1,600. In a strictly financial sense, I would break even after 8 months. In the end, I think I’m going to hold out for a lower rate or a lender that will waive or reduce the closing costs.

Dropping Mortgage Rates

Back on November 26th the Fed said that it would purchase $500 billion dollars of mortgage backed securities from Fannie Mae and Freddie Mac. Also, the Fed said they would buy $100 billion in direct debt issued by Fannie and Freddie. After this announcement, mortgage rates dropped from about 6.0% to 5.5% in a week. Mortgage applications more than doubled after the drop in the interest rate. Follow this LINK for more information.

Are the Mortgage Rates Dropping Further?

The Federal Reserve unveiled a proposal in late November or early December for the Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. This act would cause mortgage rates to drop. The treasury wants to bring mortgage rates down to around 4.5% as a way to reinvigorate the housing market. Bankrate has a good article by Dr. Don Taylor about the interest rate potentially dropping to 4.5%.

Why Didn’t I Refinance?

I am by no means an expert on mortgages and/or refinancing, but I am hoping the mortgage rates will move closer to the 4.5% level. Also, I don’t believe the full closing cost should be required to refinance my mortgage. This is the same company that gave me my original mortgage (it has since been sold to Wells Fargo) and my coworkers and parents have never paid closing costs on a mortgage refinancing.

Originally, I was happy with my mortgage lender. He was super helpful explaining everything to me and walking me through my first mortgage experience. Then came the month prior to closing. My lender did not frequently return my emails and phone calls regarding locking in my mortgage rate. His estimated closing costs were not very close and he seemed just disinterested in to talk with me.

Imagine my surprise when my lender calls ME and offers to refinance my mortgage. This tells me that they are really in need of some money. Here’s a paraphrase of his sales pitch (and it was exactly that):

I’m in a position to drop your mortgage rate a full percentage point to 5.25%. This is a savings of $200 a month. The catch is that you have to pay closing costs again, which are just under $1,600. I wish I could lower the closing costs, but with the current economy we have to reappraise the value of your property again. By the way, this offer needs to be agreed on 5 minutes ago.

I take this as a desperate sales pitch for a mortgage lender that really needs some extra cash. First of all, why does my property need to be reappraised? It was appraised just over two months ago and it was new construction. How could it have decreased significantly? You can’t tell me this appraisal will cost $1,600, so why can’t he waive the rest of the closing costs? Other mortgage lenders have been able to do so before.

Bottom Line

I am not comfortable dealing with a lender who is unwilling to provide me with ample time to do my research and consult with my friends and family. Instead of making me feel comfortable with a major decision, it seems like he’s trying to bully me into making a rushed and rash decision. I don’t know if the mortgage rates will drop any further, but I am fairly confident that they won’t be increasing in the near future. At the very least, it’s a very good feeling to know that I will be able to lower my interest rate and monthly payment.