Refinancing to a fixed-rate mortgage

A huge number of homeowners have been refinancing this year to take advantage of the current historically low interest rates.

Some experts think these low rates will be with us for some time, but if you have an adjustable-rate
mortgage and no plans to move over the next year or two, it's probably better to act now than to wait.

The ability to lock in 15- and 30-year rates around 5% is a no-brainer, especially given the alternative of a variable rate that's highly vulnerable to future inflationary (upward) pressure. Nobody knows when inflationary winds will start blowing in earnest, but some think we may be seeing the first traces already breezing through the bond market.

Normally we'd encourage a 15-year loan for anyone who can swing the higher payment, but given the economic uncertainty and the fact that 15- and 30-year rates are pretty close in many markets, it may be worthwhile to consider sticking with a 30-year loan and simply doubling up your principal payments, rather than being locked into the higher 15-year payment.

In an extremely uncertain economic and job climate, payment flexibility may be more valuable than shaving an extra eighth or quarter off the interest rate. It's easy to turn a 30-year loan into a 15-year with extra principal prepayments; it's difficult to do anything to ease the pressure of a 15-year loan payment if you're unfortunate enough to lose your job at some point.

"Run the numbers" and decide which is the better approach in your situation.

*** This post is used with permission of Sound Mind Investing, America's best-selling Christian financial newsletter. SMI, published by investment advisor Austin Pryor, has been Crown's primary investing resource for nearly 20 years. More than 14,000 families rely monthly on SMI's step-by-step investment advice. Visit Sound Mind Investing to learn more.

Comments

[Brian]

Funny thing is that my mortgage company sent me information on refinancing - "visit our website", so I visited the site and it said "we are not refinancing ... at this time."