If Your Mortgage Rate Is Meaningfully Above 4.3%, Consider Refinancing Now

Lots of hedge funds are having a very difficult start to 2014. Many were short long-term bonds as a hedge against a correction in U.S. stocks. Despite profit-taking in equities this month, bond prices are surging and yields are falling. The benchmark 10-year treasury bond has seen its yield drop from 3.03% on January 1st to 2.65% today. Mortgage rates have followed suit, dropping to 4.31% (30-year fixed) according to bankrate.com. A 15-year mortgage now costs about 3.35%, nearly a full point lower.

If you have a mortgage with a rate significantly higher (say, 5% or above), I would recommend crunching some numbers to see if refinancing would make sense. I don’t expect rates will stay below 4.5% for very long so this pay be one of the last chances to lock in a great rate. Also, people tend to ignore the 15-year mortgage option (the payment is typically about 50% higher than a 30-year mortgage, despite a lower interest rate), but it could very well be an attractive option for some people, especially if your current payment does not make up a large portion of your discretionary income.

For instance, let’s say you currently have 20 years and $200,000 remaining on a 30-year mortgage at 5% (monthly payment of ~$1,075). If you could handle a payment of ~$1,425 you could refinance into a 15-year mortgage at 3.5% and have your house paid off 5 years early. The increased cost might not be workable for many, but for those looking to cut monthly expenses or retire as soon as possible, a refinance might aid in the process.