First Person: Scrambling to Refinance Before the New Year

Yahoo Contributor Network

I've heard conflicting reports about whether mortgage rates will go up significantly in the new year. Some experts say mortgage rates will remain low in the first half of the new year, and then gradually increase. According to a recent article by Fox Business, mortgage rates ticked up because of the budget squabbling. I feel as though the squabbling to avert a fiscal cliff had me scrambling to refinance again before it was too late. I called my mortgage company to find out what I'd gain by refinancing and locking in on a low interest rate now.

Choosing a 15-year fixed rate

I spoke with a representative with my mortgage company about refinancing to a 15-year fixed rate, which has remained relatively unchanged as the 30-year fixed rate rose slightly this past week. According to the representative, we would save $38,000 in interest by refinancing from our 4.625 percent rate to a new rate of about 2.75 percent.

Considering the 5-year ARM

I have also considered the 5-year adjustable rate mortgage (ARM), which is something I never would have contemplated until now. During the housing bubble, people felt duped by the ARM because they didn't expect the interest rates to go up. However, I like the idea of having the rate fixed for 5 years and then dealing with an adjustable rate. The only reason I like the idea is because I think we could probably pay off the entire loan in five years since our balance is much lower than when we purchased our home in 2005.

Figuring rates will go up

I am sure interest rates will go up eventually because they are at historic lows. Some experts warn that mortgage rates go up much faster than the rates go down. With that in mind, it makes sense to lock in on a good rate. My mortgage company offers 90 days to lock in a rate. According to the Fox article, refinancers switching from a 5 or 6 percent rate shouldn't delay. However, people in my situation who have a rate at about 4 or 4.5 percent shouldn't be in as much of a panic.

Trying to avoid PMI

My only reason for hesitating before jumping on the refinance bandwagon is the fact that our bank would require us to pay a PMI or private mortgage insurance payment of $50 a month. I am extremely annoyed by this fact since we put 20 percent down on our home purchase in 2005. Moreover, we have paid extra on our mortgage. It seems ridiculous to have a PMI tacked onto my mortgage just because the values in my neighborhood have sunk so low. Our $183,000 home is now worth $123,217, according to Zillow.

If I can avoid paying PMI by paying down my mortgage in the next few months, I will be much happier. As it stands, I am watching the mortgage rates on a 15-year fixed-rate mortgage like a hawk. I know we need to refinance no matter what while we can still nap a rate that comes in less than 3 percent.

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