Below is an article written by Mike Averbach, as seen in the Averbach news.
In today's edition of Averbach News, we're going to talk about the importance of locking in a current variable rate mortgage at today's all-time low fixed rates.
Long story short: if you have had a VRM at anywhere from Prime minus .60 to .90 over the last 3-5 years, your average rate has been in the 3.6 to 3.9% range. If you could guarantee that rate range for the next 5 years, why wouldn't you!?
We know that rates are going to rise aggressively. Prime should peak sometime in 2012 though we could see as much as a 1.5% increase this year alone. So, again, why wouldn't you lock in now at 3.69 to 3.99%? Do we need to sing that Kenny Rogers song again? Pat yourselves on the back for choosing variable prior to the downswing and cash in your chips. For if you don't, you will most certainly be locking in at a fixed rate well above today's rates.
We fear that many of you have adjusted your lifestyle to your ultra-low payments but have not yet accounted for an increase. Are you prepared for a 2% jump in your interest rate? Do you know what that will do to your payment? Take a few moments to work it out at your current amortization with our sophisticated online calculator. Well? Are you ready?
We also want to encourage ALL OF YOU who have a fixed rate mortgage currently above 4.5%, to call us ASAP for a 120 day rate hold for a refinance.
As long as mortgage rates stay the same, it is highly unlikely that you will see any benefit to refinancing because of the high penalties. There IS a benefit to having a fresh 5 year term since we cannot know what the rates will be when your current term comes up. One thing we are sure of is that rates will be HIGHER. Again, it's important to understand that this is not to persuade you to take on more debt. On the contrary. While you will add a penalty onto the current balance you carry, at the end of the next 5 years, you should be thousands of dollars ahead had you stayed the course in your current term or if you have to renew at a rate much higher than today.
As mortgage rates go UP, the refinancing penalties go down. This is called IRD or Interest Rate Differential. It's an intricate calculation based on your current balance, rate and months remaining. Sometimes this penalty amount can be thousands!
IF you take action now you could benefit greatly when mortgage rates start to go up again. Currently, some lenders still have their 5 year fixed rates in the 3.69 - 3.89 range (see our rates page). These rates have never before been offered and may never again...in our lifetime.
What we do is get you the BEST rate we can and lock in the offer. Depending on the mortgage company, we can lock in for up to 4 months and can often renew for another 4 months at a time. Then we wait. At some point the mortgage rates are going to go up again.
At the point where you are actually saving enough money to make the transaction worth while, we finalize your refinanced mortgage.
IN A NUTSHELL:
1. You lock in a rate-hold today via a pre-approval application while the interest is low.
2. You wait until the mortgage rates start to increase.
3. When the mortgage rates go UP, your penalty for refinancing goes DOWN.
4. When the transaction generates a positive cash savings for you ... we refinance at the lower rate, with the lower penalty.
Written by: Mike Averbach, AMP Mortgage Planner forAverbach Morgages