| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR
Don't Give Up On That Refi You can still lock in rates that are historic bargains Deciding whether you should refinance your mortgage just got harder. Now that the average 30-year, fixed-rate home loan has risen to 7.6%, more people feel like they missed the boat on refinancing. In October, when mortgage rates bottomed at 6.7%, two-thirds of all new mortgages were refinancings, says Frank Nothaft, deputy chief economist at Freddie Mac. That figure is now down to a third, including those who are consolidating other debts, such as credit cards, into their mortgages. But even if it's no longer in vogue, refinancing can still be a smart move. You may be able to secure an attractive rate and come out in the black in just a few years, even if you have to pay up to 4% of the amount you're borrowing in points and fees. One way to do it: Lock in today's low (yes, low) fixed rates. Sure, they are above October's lows, but historically speaking, they're still bargains. ''The average mortgage rate for the '90s is 8.3%,'' says Keith Gumbinger, vice-president at mortgage tracker HSH Associates in Butler, N.J. So if rising rates are causing you to lose sleep over your adjustable-rate mortgage, or if your fixed-rate is 8% or higher, you may want to go for a new loan. Let's say you still owe $100,000 on your home, and you refinance from 8.5% to today's 7.6% for 30 years, paying one point, or $1,000, and $1,000 in other fees. Your monthly payments will drop from $769 to $706, and it will take you about 32 months to recover your costs. Not a bad deal if you have several years left on your original mortgage. (One tax caveat: When you refinance, you have to amortize the points you paid over the life of the loan; with a new loan, you deduct the points in the year you take a mortgage.) Don't have upfront cash? If you're now paying 8.5% or more, you can easily find loans of 8% or 8 1/8% with no points or closing costs. A SHOT. To see if a new fixed-rate loan makes sense, try one of the refinancing calculators on the Web, such as those from HSH (www.hsh.com), Bank Rate Monitor (www.bankrate.com), or BUSINESS WEEK (www.businessweek.com/investor/frame/research.htm). Plug in the details of your loan and the expected rate, and you'll see in an instant what your savings could be. Then, once you've decided to give refinancing a shot, check out HSH's continually updated list of rates in your area. You'll have to click through each bank's posting to find their rates. If the recent days of 7% rates prevent you from seeing 7.6% as cheap, then try a hybrid mortgage. You borrow at a fixed rate for a specified number of years. After that, the loan becomes adjustable. Take a 30-year, 5/1 hybrid, which is fixed for five years, then adjusted once a year after that. Its fixed rate averages 6.9% now, a big discount to the regular fixed rates. The average fixed rate for a 7/1 hybrid is a hair under 7%. ''Right now, hybrids are a great way to get your rate below 7%, and you can always refinance sometime in the next five or seven years,'' says Gumbinger. Which just shows that it's always worthwhile keeping an eye on your mortgage. BY MALCOLM FITCH _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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