Should I Refinance my Home or Did I Miss the Window?

Dear Ali;
I have been talking to my banker about refinancing and he said rates have jumped significantly. Is now the time to refinance, or did I miss that boat?
A: Conventional wisdom is that you should refinance when you can save a point. So if your interest rate is at 7 percent, and rates drop to 6 percent, it generally makes sense to refinance.

However, due to something called "risk-based pricing," there are some surcharge fees you have to pay if your loan is in a group with a slightly higher default rate -- for instance, you'd pay extra to refinance a two-family home, because those loans tend to have higher default rates. You might have a perfect record of paying every bill on time, but you'd still get hit with the higher fee.

So I'd say you probably want to hold off trying to refinance unless you can save a point and a quarter -- or if you're sure, sure, sure that you're going to stay in the home more than five years.

The market agrees with me: In today's weekly survey of loan application volume by the Mortgage Bankers Association, applications for refinancings plunged by 11.8 percent. That's down in just a week, and it reflects last week's un-fun 1/2 point jump in interest rates.

We're in a really volatile market, though, so keep watching the Federal Reserve -- if they jump in to lower interest rates, you might find another opportunity to refi.

Good luck!

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