Some borrowers have been surprised by the jump in monthly payments on their adjustable-rate home loans this year. Payments on a $250,000 mortgage could have risen “by more than $100” as a result, says The Wall Street Journal.
Fortunately, conditions are excellent for saving money by refinancing now. Rates on fixed-rate mortgages recently were near historic lows.
Yet purchases of mortgage-backed securities by the Federal Reserve and U.S. Treasury are scheduled to end on March 31, 2010. Rates then could move higher as demand for these pools of home loans drops as the government steps aside.
Refinancing can do more than ensure that your payments don’t go up in the future. Half of all refinancing borrowers in the fourth quarter of 2009 “lowered their annual mortgage interest rate by at least 0.9 percentage points below the old rate,” says mortgage investment firm Freddie Mac.
And one in three borrowers last fall paid down some of their loan when they refinanced. In that way they further reduced their monthly payments. Unfortunately, owners who wait until rates start rising will lose some of the benefits of refinancing.