Time to refi? Mortgage rates hit record low

Bankrate.com

Mortgage rates inched down and reached new record lows this week. If you are wondering how much time you have left to grab this once-in-a-lifetime opportunity, keep your eyes on next week's Federal Reserve meeting.

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30 year fixed rate mortgage – 3 month trend

30 year fixed rate mortgage – 3 month trend

30 year fixed rate mortgage – 3 month trend

The benchmark 30-year fixed-rate mortgage fell to 3.5 percent from 3.52 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index stood at 4.24 percent; four weeks ago, it was 3.57 percent.

The benchmark 15-year fixed-rate mortgage fell to 2.85 percent, from 2.86 percent. The benchmark 5/1 adjustable-rate mortgage was 2.74 percent, the same as last week.

Weekly national mortgage survey

Results of Bankrate.com's Dec. 5, 2012, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed15-year fixed5-year ARM
This week's rate:3.5%2.85%2.74%
Change from last week:-0.02-0.01N/C
Monthly payment:$740.92$1,127.59$672.72
Change from last week:-$1.85-$0.79N/C

This is the lowest level the 30-year fixed rate has reached since Bankrate started the weekly survey 26 years ago. The rate first dipped below 4 percent in mid-May and has been hovering near the bottom or reaching new lows since then.

Will the Fed continue to rule the mortgage world?

The Fed's bond-buying spree is one of the main factors contributing to today's low rates. Operation Twist, one of the Fed's stimulus programs, expires at the end of the year, and some in the mortgage industry worry that its end could trigger slightly higher mortgage rates.

Next week, when the Federal Open Market Committee meets, the Fed may announce an extension of Operation Twist or an expansion of its bond-buying program known as QE3.

"I think they'll extend it," says John Walsh, president of Total Mortgage Services in Milford, Conn. "If they don't, you could see a little pop-up in interest rates. I don't think the housing market can accept higher rates now."

The other elephant in the room for those monitoring mortgage rates is the so-called fiscal cliff.

If Congress doesn't reach a deal to prevent deep spending cuts and a series of tax increases to go into effect in January, rates could drop slightly because investors will be worried about a potential recession, Walsh says.

But there's not really much room for rates to drop further, says Tommy Xintaris, senior mortgage consultant for AmCap Mortgage in Houston.

"They are already at the floor," he says. "It's basically free money these days."

For borrowers considering a new mortgage or a refinance, waiting for lower rates would be almost "irresponsible," Walsh says.

Underwater borrowers: Time to get your share of the pie

That's especially true for underwater borrowers who are still paying 6 percent or 7 percent in interest on their mortgages.

Refinances for borrowers who are upside down on their mortgages have become much easier to obtain in recent months, says Rob Nunziata, president of FBC Mortgage in Orlando, Fla.

The revised version of the Home Affordable Refinance Program, or HARP 2.0, allows refinances for homeowners who owe more than their homes are worth, regardless of how deeply underwater they are.

After the program was revised earlier this year, many borrowers still found obstacles as many lenders added their own restrictions to the program. But the situation changed for the better after lenders were recently given more clarification regarding the guidelines, Nunziata says.

"The gate is open to everybody," he says. "It doesn't matter what your LTV (loan-to-value:the amount you owe compared to the value of your home) is, if it's a second home or an investment property, lenders are much more confident with the program today."

More than 700,000 borrowers have refinanced their loans through HARP since the beginning of this year, according to the Federal Housing Finance Agency. HARP refinances accounted for about 27 percent of all refinance applications last week, according to the Mortgage Bankers Association weekly survey.



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