Refinancing: Now Is a Good Time to Lock In

Minnesota state trooper Pat Miles wanted to make sure he didn't miss an opportunity to grab a super-low interest rate when he refinanced his mortgage in November. "We refinanced our town home because I had this fear that rates would start creeping up a bit, and we wanted to save a little bit of money," he said. With a new rate of 4.375 percent, he was able to save $100 a month--and just in the nick of time.

If you've been thinking of refinancing your mortgage for a while, now may be the time to take action. A CNNMoney.com survey of economists in December revealed that most expected the Fed funds rate--the interest rate used to determine a variety of loans--to stay close to 0 percent for another year. But that doesn't mean that mortgage interest rates won't begin to creep up in 2011.

Rates increased in mid-November to 4.46 percent from 4.28 percent on a 30-year mortgage, due to stronger economic data and lingering uncertainty regarding the impact of the Fed's QE2 program, said Michael Fratantoni, the Mortgage Banker's Association vice president of research and economics. More recently, as of the week ending January 21, the 30-year rate was up to 4.8 percent from 4.77 percent.

Although rates are still quite low compared with the early 2000s, some people are holding off on refinancing in the hope that the Fed's plans to pump $600 billion into the economy through the purchase of long-term Treasuries will lower interest rates even further. But experts consulted by AOL Real Estate say that scenario is not very likely.

They expect rates to rise, albeit at a slower pace than if the Fed had not stepped in, which means there are still good refinancing deals to be had for homeowners who act now.
Here's why: The Fed's plan is to spur the economy, and if the economy grows, interest rates will rise. If interest rates rise too high, refinancing will no longer be the appealing option it is at present.



At a time when 30-year fixed-rate mortgage rates remain below 5 percent--by any measure, a historically low rate--homeowners have a range of affordable refinancing options unimaginable just a few years ago.

For those with the financial means, for example, one might consider refinancing into a 10-year loan rather than a 30-year loan, says Leif Thomsen, CEO of Mortgage Master Inc. When you look at the 10-year rate, he says, "it has been at 3.55 or so at its high and 3.26 at its low for a while." But even today's 30-year mortgage refinance rates are not going to stay this low forever, Thomsen says: "Longer-term rates will most likely start creeping up."

And when they do, homeowners thinking about a refinance may wonder why they didn't act sooner. As real estate doyenne Barbara Corcoran recently told AOL Real Estate, "It's like money's on sale....But, ironically, until interest rates go up, people will take it for granted, and [some] won't feel the urgency to take advantage of it."