Refinance Now: Memorial Day Sale on Mortgages

Last Updated May 24, 2010 11:50 AM EDT

Mortgage rates dropped to record lows at the end of last week, opening a window for anyone who hasn't yet refinanced into a rock-bottom rate loan. That window may soon close, though, so act now! Supplies are limited.

The average rate for 30-year fixed-rate loans is 4.84 percent, its lowest level this year, according to the latest Freddie Mac release. Rates on 15-year fixed-rate loans, at 4.24 percent and five-year adjustable rate mortgages (ARMs), at 4.3 percent, are at their historic lows.

Why? All those troubles in Europe, coupled with the sell off in the U.S. stock market, is sending money back into U.S. bonds (including mortgage-backed bonds) as a safe haven. At the same time, the end of the homebuyer's credit on April 3 dampened demand from homebuyers. So there's plentiful and cheap money for existing homeowners to refinance with, and to make home purchases affordable for first-time buyers even without that $8,000 credit. As the markets stabilize and the recovery takes hold, those rates could very well disappear for decades. So make your move now, whether you're an owner, buyer, or seller:

  • Take a second stab at the market. If you have a mortgage currently, you may be able to refinance, even if you couldn't last year. That would be true if (1) prices in your neighborhood have stabilized or moved up; (2) the new lower rates mean you qualify for a loan you may not have qualified for last year; or (3) you've done everything right with regards to paying your bills and you've raised your credit score.
  • You may want to take cash out. Sure, that was considered a really risky thing to do in the last few years, but borrowing money long-term at less than 5 percent may end up being your smartest money move. In five years, that could look really cheap. If you're getting ready to pay for college, put on an addition, or do something else that's sensible with the money, think about borrowing now and tucking the money away in a safe place. And by 'safe place' I mean bank CD's, not stock market mutual funds. In the short term, you'll lose money on the spread between the rates on your CD's versus your mortgage, but you'll be locking in a low-cost loan. Don't use this strategy to pay for a car or vacation, though. Even at low rates, you don't want to spend 30 years paying for them.
  • Homebuyers should keep shopping. Don't worry so much about having missed out on the homebuyer's credit. If you cut half of a percentage point off of a 30-year, $200,000 loan, you'll save $22,000 over its life.
  • Line up the loan quickly. Even if you're still just house hunting, do some preliminary loan shopping at independent comparison sites like MortgageMarvel or HSH and apply for your loan. You can usually lock in your rate for 60 days, or pay a little bit extra to lock it in for 90 days. Keep pressing to close fast, because all of the housing activity at the end of April will back up the pipeline for appraisals, title searches, and the like. You don't want to give your lender any excuse for foot dragging if rates have increased by the end of your lock-up period.
  • Sellers, don't despair. These low rates make your home that much more affordable for buyers, and presumably a larger pool of buyers would now qualify to buy it. Have your real estate agent do the math and show potential buyers how these rates could help them get into your home. Then do your part: wash the windows, bake the brownies, plant petunias by the front door. All of that, plus the low-rate bonus, could prove irresistible.
Photo illustration by WoodleyWonderworks on Flickr.