Home > Mortgages > Mortgage Rates Drop: What to Know Before You Refinance

Comments 0 Comments

According to the Mortgage Bankers Association, there has been a surge in mortgage refinance applications as homeowners try to take advantage of a recent drop in mortgage rates. The MBA reports that the average contract interest rate for 30-year fixed-rate mortgages decreased to 4.54 percent with .98 points for loans with a Loan-To-Value of 80% or less. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.66 percent, with points of 0.97 for loans with an 80% LTV. The effective rate is now at the lowest level since October 8, 2010.

Twice in my career I worked as a mortgage loan officer, and over the years I’ve heard all kinds of misconceptions about how mortgage rates work. I thought I would seize this opportunity to share a few tips I’ve picked up from interviewing Joe Kelly, president of ArcLoan.com, each week on my radio show Talk Credit Radio. (Along with Credit.com, his firm sponsors the program, and Joe shares tips in a weekly mortgage report.)

[Featured Product: Looking for credit cards for bad credit?]

Here are four things you should know about mortgage rates:

1. You can get just about any rate you want—if you are willing to pay for it.

While your first question to a mortgage company might be “What’s the rate?,” your second question should be, “What will that rate cost?” You can get practically any rate you want, explains Kelly, but it depends on how much you are willing to pay for it. On any given day there is a range of rates where customers pay 3 or 4 points to lenders in exchange for a lower rate, or where lenders give borrowers a credit toward closing costs in exchange for a higher rate.

My advice: Ask the loan officer to show you several options—with closing costs and without closing costs—and help you figure out what the “breakeven point” on your closing costs will be. In other words when will you recoup those costs and will you be in the home that long?

2. Rates aren’t affected by what you probably think they are.

Most people think that the Fed’s rates have the biggest effect on mortgage rates, but Kelly says that inflation fears have the biggest effect on long-term rates. The Fed’s rates have more impact on short-term rates.

And what goes on outside our borders can be just as important as what goes on within them. “We live in a worldwide economy,” says Joe Kelly, “and what happens around the world does affect our mortgage rates.” Case in point: Michael Fratantoni, MBA’s Vice President of Research and Economics, points to the “ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe” for recent drops in mortgage rates.

My advice: Stop trying to second-guess where rates are going. If rates are good and it makes sense financially to refinance, then just do it.

What to Know Before You Refinance (con’t.) »

Pages: 1 2

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team