Record low mortgage rates

Record low mortgage interest rates mean big savings for home buyers and those refinancing a mortgage.

In January I thought I had written my last column about record-low interest rates, and just how much they can benefit home buyers and mortgage refinancers.

Like many people who figured interest rates had nowhere left to go but up, I was mistaken.

Borrowing $200,000 today for a 30-year mortgage would cost about $850 a year less, in annual payments, than borrowing that same amount in December. To put it another way, the payments on a $210,000 loan at today’s rates would be the same as the payments on a $200,000 loan secured in December.

For homeowners who already have mortgages, rising real estate values have been increasing the amount of equity those homeowners have, making it possible for more people to refinance. Owners who were “underwater” on their loans previously may now have a chance to jump to a lower interest rate. (Equity is what the property is worth, minus the outstanding debt. When the debt’s larger than the equity a loan is underwater).

Consider that a $200,000 mortgage loan, today, would cost $2,700 less each year than borrowing the same amount 10 years ago, during the height of the housing price bubble. The going interest rate was 5.62 during the first week of July, 2006, according to the feds who track such things.

Mortgage interest rates have now fallen to all-time lows. There are many reasons why, but the short and oversimplified version is, investors have been buying U.S. Treasury bonds as a safe haven during uncertain times — slow U.S. economic growth, negative interest rates overseas, the “Brexit” and other factors — and that pushes interest rates down.

These low interest rates will give home buyers one more opportunity to lock in long-term loan rates that are lower than they have ever been. They will give people with existing loans one more chance to refinance to record-low rates.

How low are we talking about? For people with good to excellent credit, 740 or better, a 30-year mortgage could be had this week at a fixed interest rate of 3.375 percent. A 15-year mortgage could be had for 2.75 percent, according to the folks at Lucey Mortgage in Mount Pleasant (disclosure: they handled my mortgage refinance last month).

Potential home-buyers in South Carolina should also remember to inquire about getting a mortgage credit certificate. For those who qualify, obtaining a mortgage credit certificate from a lender before closing on a home purchase entitles the holder to an annual federal tax credit worth up to $2,000.

For those considering refinancing, here are a few important points to remember.

The decision to refinance depends on balancing the up-front costs against the expected savings, which will vary depending on the interest rate, the loan term, the closing costs, and how long the borrower expects to stay in the house. It’s easy to go online and see not only what the loan payment would be on a mortgage, but also how a refinance could help build equity more quickly (search online for “mortgage amortization calculation” — bankrate.com has a good one).

There are costs involved with refinancing, such as title research, an appraisal, a lawyer to review closing documents, and lender fees. Costs can vary widely, so compare closing costs as well as interest rates. When I shopped for my recent refinancing, I found costs that varied by as much as $1,500.

Refinancing can leave you with a longer mortgage, or a shorter one. Common terms are 30 or 15 years, but 20 years is also an option. Shorter-term loans build equity faster and have lower interest rates, but have higher monthly payments. The lowest payments come with 30-year loans, but most of the money goes towards interest in the early years.

Don’t overlook the fine print. Make sure a loan allows you to pay it off at any time, with no penalty, for example.

I won’t guess what the future holds, in terms of interest rates or the real estate market. What I know is that mortgage interest rates have never been lower. There may not be a better time to refinance, but if there is, I’ll write about it.