First Person: How Low Will Mortgage Rates Go?

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Like most Americans, I'm watching to see how low mortgage rates will go. I have been wondering if it's a good time for us to refinance our home.

According to an article on Mainst.com, mortgage rates are at historically rock-bottom levels. In fact, the average 30-year fixed-rate mortgage is at 3.87 percent.

My husband and I have a FICO score above 720, which means we would qualify for the rate deals. However, I had to consider whether it's in our best interest to refinance or to sell and purchase a new home at a lower interest rate. We refinanced to a 15-year-mortgage just two years ago. Our bank offered us the refinance at no cost.

Calculating the cost of moving

It didn't take many calculations to realize that we would be losing by selling our home and buying a new home with a lower mortgage rate.

We bought our home for $183,000 at the top of the housing bubble and it's now worth $109,000, according to Zillow.com. A home just like ours in our subdivision sold for $115,000 within the past 30 days. We would lose a tremendous amount of money in terms of moving expenses and closing costs to make a move.

Failing the rule of thumb test

According to Mainst.com, the rule of thumb when it comes to refinancing is that it is a bad idea if you are planning to move within five years. While we don't plan to move within five years, we do plan to have our mortgage paid off in a little more than five years. With that in mind, our savings would be eaten up by refinancing fees and closing costs, not to mention any surprise fees associated with paying the mortgage off early.

Resetting the mortgage payment clock

A lot of people reset their mortgage payment clock to 30 years when they refinance. However, I've heard of some lenders offering more flexible refinances that are a shorter duration. If you had only 12 years left to pay off your mortgage, they will refinance at the lower rate for those remaining 12 years, for example.

With an interest rate of 4.625, it's tempting to refinance, but it doesn't make a lot of financial sense at this point. Right now our priority is to pay off the mortgage. If our financial situation changes, we may want to refinance so that our house payments are lower. That's why I'll keep a close eye on mortgage rates for the next several years. I'll be the first to refinance if mortgage rates hit 2 percent.

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