To Refinance, Or Not To Refinance?

Two weeks ago, I got a call from a mortgage broker from my bank. He told me that he was going through my accounts and he thought he could do something to lower my monthly payments. Naturally, I was interested with his offer and went to to inquire of their current mortgage rates.

As it turned out, their long term rates were hovering around 5% and having learned from the sub-prime debacle, their adjustable rate mortgages were horrible. Having taken out my mortgage during the height of the low interest rate environment, I thought their rates should be lower owing to the current zero interest rate environment. But I guess this time around, they are factoring in the risks that were ignored in the yesteryear's.

While I was on the phone with him, I decided to check on the web what the interbank rates were and it was then that I realized that I had a better rate than the deals he was offering me.

When we first bought our house, we never intended to stay in it for more than 5 years. If anything, I thought I'd be in town for 3 years before moving elsewhere and therefore I went for an adjustable rate mortgage that offered a very low rate. 3.87% to be exact.

It turns out I was so wrong, and if you ask me today, the last thing I want to do is to move houses or even leave town. And when my mortgage first re-adjusted last year, the rate shot up to 4.25% for 12 months. And now it is due to re-adjust again for another 12 months.

It was during my conversation with the mortgage broker that it really dawned on me that the London Inter Bank rates had fallen to historically low levels. With my mortgage margin at 2.25% above the average interbank rate for the 1 year LIBOR, I was going to readjust in the low 3%. Much lower than when my initial rate of 3.875%. To my delight, I later got a letter from my bank notifying me that my new rate from April is now 3.125%!

To be honest, I have called my bank and others several times in the last one year but I always thought that interest rates were not going to be hiked and hence I never refinanced. Last month, the Feds raised the discount rate but left the Key overnight Fed Funds rate unchanged. Although they have signaled they will raise rates towards the end of the year, I think this will be unlikely because of the upcoming mid term elections in the fall.

And with the super-low rate, I don't think I will be shopping around for a new mortgage until after the mid-term elections.