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Do Not Wait to Refinance

Posted by Larry Doyle on April 1, 2010 11:30 AM |

If you are in a position to refinance your mortgage, I would not wait. Why?

The largest buy program in the history of the U.S. mortgage market just ended yesterday. That program, part of the Federal Reserve’s quantitative easing, purchased $1.25 trillion in mortgage-backed securities. In the process, the Fed brought mortgage rates down somewhere in the vicinity of .50% to a full 1% from where they would likely otherwise be.

Although select market participants (banks and money managers) are touting their belief that mortgage rates will not trend that much higher, I strongly disagree. Mortgage rates currently look very low relative to benchmark Treasury rates.

With the Fed no longer in the market, all other things being equal (which they never are) mortgage rates will gradually move back toward some semblance of fair value from private investors’ standpoint. That means they are likely headed higher on a relative basis.

This is not to say that we could not or will not go into a double dip in the economy and interest rates overall come down, but that’s a bet or a market call. I am not making that type of call with my post here. I am merely stating that on a relative basis, mortgage rates look cheap right now.

I repeat. If you are in a position to refinance, don’t hesitate.


Related Commentary

Mortgage-Bond Yields That Guide Loan Rates Rise to 3-Month High
by Jody Shenn
Bloomberg; April 1, 2010

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