Top Refinance Options When 30 Year Fixed Mortgage Rates Increase

What mortgage refinance alternatives are available when 30 year fixed mortgage rates increase?

Mortgage Interest Rate Predictions

In May and June of 2009, mortgage interest rates skyrocketed from all time lows in the mid 4% range to nearly 6% within days. That market event is an example of how quickly low refinance mortgage rates can disappear. While mortgage interest rates have come back down, most economists are forecasting that at some point mortgage interest rates will head back up when the economy recovers. Mortgage rates will continue to fluctuate in the short term, but we will never really know until it is too late when the last mortgage rate increase will keep rates up to stay up for an extended period.

So what do you do if you need to refinance and mortgage rates have spiked up? In order to answer that question, you need to analyze your current mortgage financing and your overall financial goals. If your mortgage rate is higher than current rates, then whether or not it makes sense to refinance will depend on how much you can save, how long you plan to keep your home and your total cost of refinancing (see: "Should I Refinance? - Take this Test"). If you currently have a 30 year fixed rate mortgage, sometimes even a small decrease in your mortgage rate can have a large impact on your mortgage payment if you make a small change to the term of your loan.

Look at your financial goals when deciding on refinance options

Your overall financial goals also play a part in determining what refinance option to pursue when mortgage rates have increased. Your home and your mortgage are usually the largest part but certainly not the only part of your overall financial position. For example, you may need to send children to college over the next few years. Even though fixed mortgage rates might be high, it may make sense for you to refinance into a 5/1 adjustable rate mortgage for the next few years to give you the payment relief needed to help afford college costs.

Or, you may determine that the recent drop in stock prices represents the greatest stock buying opportunity in decades and that you need to obtain as much cash out of your home as possible at any interest rate below 8% because you are going to put that money to work making returns of 20% or more per year.

30 year fixed mortgage rate increase options

Once you know your current financial and mortgage situation and current mortgage rates, your first option is to just simply wait it out when rates are high and hope that mortgage rates decrease at least one more time. As we saw in the 2008 campaign for president, there apparently is a great debate as to whether or not hope is a strategy.

A second option is to look at alternative loan programs such as 5/1 adjustable rate mortgages (ARMs), which have been priced extremely aggressively in 2009. A 5/1 ARM has a fixed initial interest rate for the first five years and then can change once each year after that. For example, when 30 year fixed mortgage rates spiked to nearly 6% back in June, 5/1 ARMs were still in the 4% range. While rates have come back down this time, the 5/1 ARM if chosen back in June would have provided five years a rate in the 4% range. Five years is probably long enough for rates to increase and decrease at least once or twice, giving you the opportunity to refinance again into a low 30 year fixed rate when you have the next opportunity.

For a refinance rate quote on both 30 year fixed rate mortgages and 5/1 Adjustable rate mortgages, complete a free rate quote request now!.

To see the current mortgage rates, visit our Current Mortgage Rates page.

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