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Is now the time for mortgage refinancing?

August 8th, 2012

On Aug. 2, Freddie Mac revealed in a press release that most mortgage rates had risen slightly during the week leading up to that date. Normally, that would be of little surprise as home loan rates usually bob up and down. However, with rates having fallen or remained at record lows in 13 of the previous 14 weeks, analysts are likely asking themselves: “Is this a bottoming-out? Is the long-predicted rise in rates finally happening?”

Predicting mortgage rates accurately is difficult

It could be months — possibly even years — before they have a definitive answer to that question. In recent years, we’ve seen mortgage rates rise slightly only to fall again to new record lows, the last of which was observed only a week before Freddie Mac’s press release.

The press release showed that current mortgage rates for 30-year fixed-rate mortgages (FRMs) averaged 3.55 percent with 0.7 points that week. At the same time last year, that same rate was 4.39 percent. Back then, even that was seen as unsustainable, and most commentators were predicting significant rises.

Case in point, in its August 2011 Mortgage Finance Forecast, the Mortgage Bankers Association (MBA) predicted that 30-year FRM rates in Q3 (the third quarter of 2012) would average 5.1 percent. The MBA wasn’t alone. Most others thought that was a realistic expectation as well.

Watch trends to time mortgage refinancing decisions

If expert economists specializing in forecasting mortgage rates can get things so spectacularly wrong, what chance do ordinary homeowners have of judging the right time to refinance? The short answer is that choosing the right moment seems to have more to do with luck than judgment.

However, that shouldn’t be an excuse for not refinancing. Those who were reluctant to refinance over the last three or four years because they weren’t absolutely sure they would get the very best deal would, today, probably find themselves thousands of dollars worse off had they acted at almost any time during that period. They were better off for having waited.

Small wonder, then, that the MBA reported August 1 that refinances represented 81 percent of all new home loan activity during weekending July 27. None of those people could be certain that mortgage refinancing rates wouldn’t fall yet again, but they took the chance anyway — and it’s a choice many commentators would regard as very sensible.

Peter Andrew

Peter Andrew has over 25 years of experience writing about marketing, advertising and management. He regularly covers consumer credit card topics for IndexCreditCards.com and other personal finance publications including Fox Business and MSN Money. He also writes frequently about mortgages and auto loans. Peter has spent extended periods living overseas, in the UK, France and Africa. He lives with his partner of 20+ years, and wastes too much of his time on cryptic crosswords.