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Refinance on the dips

 

The concept of "buying on the dips," which refers to purchasing stocks when prices drop, can be applied to refinancing, says Keith Gumbinger, vice president of HSH.com in Riverdale, N.J.

"Basically, refinancing on the dips just refers to homeowners using an opportunistic approach to realize savings when mortgage rates drop," says Gumbinger. "If you were thinking about refinancing last year and missed your opportunity because rates climbed in the fall and then you got distracted by the holidays, there's still an opportunity now to refinance."

Many experts predict that mortgage rates will climb to 5.0 percent or higher in 2014, but economic pressure has pushed rates a little lower for the first portion of 2014.

According to HSH.com, the rate for the 30-year conforming fixed-rate mortgage was 4.35 percent for the week ending Feb. 7, 2014 compared to an average of 4.69 percent for the week ending Sept. 6, 2013. While this 2014 decline doesn't come close to the 2013 rock-bottom rate of 3.49 percent for the week ending May 3, 2013, borrowers can still realize savings when rates dip.

Refinance dips

Tracking the dips

"Mortgage rates rise and fall for a lot of reasons. You can look for clues about what will happen by following economic reports such as the statements of the Federal Reserve after their meetings every six weeks and the monthly employment report that comes out on the first Friday of every month," says Gumbinger. "Rates will rise or fall depending on those reports and generally follow along with the fluctuations of 10-year Treasury bills. You can also follow mortgage rates through sites like HSH.com."

Planning your strategy

Mortgage rates typically follow the bond market, says Steven March, branch manager of Inlanta Mortgage in Oconomowoc, Wis., so it's possible to time your refinance.

"My best advice for a rate-sensitive refinance customer is to go ahead and begin the underwriting process and then ask your lender to set aside your loan application until a date when mortgage rates are down," says March.

Preparing for the dips

March says that a lender can take 30 to 60 days to approve a loan based on your full mortgage documentation and paperwork, so he suggests floating your rate with a lender while an appraisal and title search are done and your income and assets are verified.

"You and your lender can watch mortgage rates during this time and lock your rate in at any time during the process," says March.

While a slight drop may not cause a drastic difference in your monthly payment, an interest-rate dip will impact your closing costs, says March.

"Borrowers get a rebate to use towards their closing costs that depends on the length of the rate lock, the interest rate and the size of your loan."

For example, March says that on a 30-year fixed-rate loan, a borrower can get a rebate of $886 with a 4.5 percent interest rate and a 27 day loan lock. The rebate jumps to $1,272 with a 12-day lock and a rate of 4.25 percent.

Refinance planning

"Even though you're attempting to time the market to the lowest of low mortgage rates, you still need to do some long-term planning," says Tim Ross, president and CEO of Ross Mortgage Corp. in Royal Oak, Mich. "You need to make sure it makes sense to refinance, that you're staying in the home long enough to recoup the three to five percent of your home value that you'll pay in closing costs."

Ross recommends determining your goals for refinancing such as a lower payment or a shorter loan term before your focus on getting the lowest rates.

"If you're focused on a particular interest rate and you're waiting for rates to drop by 10 basis points or something like that, you may need to wait for 90 days or so," says Ross. "The problem is, you'll have made three more mortgage payments by then at your current rate, so this could end up costing you more just because you're being a bottom feeder. It's better to focus on your long-term savings more than the rate."

If you want to refinance, the best thing you can do is to get the process started and be fully prepared to act once rates drop, says Gumbinger.

About the author:

Michele LernerMichele Lerner, author of "HOMEBUYING: Tough Times, First Time, Any Time", has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including The Washington Post, The Motley Fool, Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT's REIT magazine and numerous Realtor associations.

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