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Time for Deej to refinance...the only question is when?



April 22, 2008 – Comments (4)

I've decided to tap the infinite wisdom of the CAPS community to take an informal poll to see when the best time to refinance my 6%+ mortgage into a 30-year-fixed zero point sub-six-percent mortgage will be.  I strongly believe that the time to do so is at some point in 2008.  The Fed has dramatically cut interest rates over the past year, but the problem is that banks have lost their appetite for risk resulting the lack of a corresponding move in mortgage rates.  I think that the Fed has got to be fairly close to being done cutting rates.  If I had to make an educated guess, I would say that they have another 50 basis points in cuts left in them for the rest of 2008, two 25 basis point moves. 

At some point, the Fed will likely begin to aggressively tighten rates again when they realize that inflation is out of control, or at least when they can no longer credibly deny it.  So I'm aiming for a window between now and when the tightening cycle begins.  I suspect that the credit markets have to loosen up at least a little bit at some point in the coming months.  I'd be happy with a 30-year fixed, zero point rate of 5.5%.  Of note, my credit is in great shape.  According to the average 30-year fixed rate is currently 5.83%.  Below is a great chart showing the history of rates over the past decade with an insert that blows up the last couple of months.

So what doth the community say?  Will mortgage rates come down?  If so, when?  What rate should I shoot for?  When are we likely to see it?

Normally this would be an interesting discussion because if one has a good idea of where mortgage rates are going to go they can apply that knowledge to the stock market.  Lower rates mean that housing will be more affordable, giving a lift to prices and possibly helping consumer spending.  Of course, if my "window" theory is right and rates will drop slightly, only to rise rapidly shortly thereafter then I don't see much of a practical application for the data, at least in playing stocks on the long side.


Looking for a new mortgage

4 Comments – Post Your Own

#1) On April 22, 2008 at 4:27 PM, devoish (74.59) wrote:

I think your best opportunity is behind you. I would get the best rate you can as soon as you can.

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#2) On April 22, 2008 at 6:48 PM, nuf2bdangrus (< 20) wrote:

I think the best was in Jan, between the ermergency and regular rate cut.  I am a banker, and we are RAISING rates to CD customers.  Loan rates are rising off inflation fears.  Best of luck on the rfi though!

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#3) On April 22, 2008 at 10:30 PM, Imperial1964 (94.13) wrote:

It's a really tough call.

As I recall, most of the 30-year fixed mortgage rates are a certain spread over the 10-year Treasury, right?

I think you just missed the lowest 10-year yields we've seen so far.  Though I'm neither a bond guru nor a banker, I think 10-year treasury yields will likely turn lower again at some point when the stock market turns lower, but I wouldn't expect them to stay there.

Your best bet is probably a panic in the stock market driving bond yields down.  What do you think the odds of that are?

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#4) On April 23, 2008 at 5:38 AM, TMFDeej (97.81) wrote:

Thanks for sharing your thoughts everyone.  Rates historically very low so I know that I'm being sort of picky here.  Perhaps I'll just bite the bullet and pull the trigger sooner rather than later.


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