Record low interest rates can save you hundreds each month

BAY VILLAGE, Ohio - Mortgage interest rates are dropping to historic levels, but how low will they go and is now the time to refinance?

Whether you want to refinance or buy a home, it's a great time to lock in a record low rate. Three and 4 percent interest rates can save you big bucks, but mortgage companies say they're not seeing record activity like you'd expect.

When Jennifer Forshey and her husband moved into their Bay Village home five years ago, they were a one-income household. So, they opted for an adjustable rate mortgage.

"We knew somewhere down the line we'd probably have to refinance," Forshey explained.

While most people panic when their ARM is about to reset – you may be able to save if your ARM is due to hit in the next few months.

“Your rate may actually be coming down as it adjusts. So, they’re not being hurt but if they are uncomfortable with that adjustable rate for the next five years thinking rates will go up, now is the time to look at a fixed product,” said Jeffrey Steed, Immediate Past President of the Ohio Mortgage Bankers Association .

Steed is also President of Schmidt Mortgage Company and believes the rates won’t drop much lower because they’re already at historic levels. He believes economic forecasts that predict these rates will remain in the same ballpark until early 2011. An increase in rates would slow down the economy, and there are no signs that's needed.

According to Freddie Mac , the interest rate on a 30-year fixed rate loan is around 4.42 percent. A 15-year arm is around 3.90 percent. Click here to find mortgage rates in your zip code .

"I'm not sure rate is the story anymore quite frankly," Steed explained.

The low rates are making headlines, but for Steed, consumers need to understand that regulations are changing the industry.

Refinancing costs

“Do it if you can but be prepared for a different experience,” Steed explained.

Be prepared to discuss your debts, credit, income and the value of your home.

While home values have dropped, Steed said don't let that sideline you.

"The value of the home at least for us in Northeast Ohio has improved dramatically from where it was two years ago," Steed explained.

It's not appraisals that are making refinancing difficult. It's the paperwork. New regulations have doubled loan files, and the price of refinancing is up. Expect to pay between $4,000 to $6,000 unless you have an FHA or VA loan.

"The pendulum from a regulation standpoint has swung so far in a direction that all the lenders that are remaining are having a very difficult time getting the borrowing experience for the borrower to be a pleasant ones. The scrutiny, the time, the costs have increased dramatically," Steed explained.

You need to balance that scrutiny with the opportunity to save.  "We need to fix a few things but enjoy the low rates while they're here you may not see them again," Steed said.

For Forshey, it made sense to refinance now. They spent a few thousand dollars to save around $150 a month while eliminating the worry over an ARM.  Who knows what the interest rates will be in five years. Now, Forshey doesn't have to worry about it.

“You have to talk to a professional and see where the math falls out," Forshey explained. The Ohio Mortgage Bankers Association put together 20 questions you should ask when finding a mortgage broker or lender.

Programs streamline refinancing

"If you have an FHA loan right now or a VA loan you can refinance that loan almost without an appraisal in many cases," Steed explained. There are FHA streamline refinances and VA interest rate reduction loan programs.

VA Interest Rate Reduction Information
FHA Streamline

With the VA rate reduction and FHA streamline, there may not be any closing costs paid upfront. They can be rolled into the loan or your lender bumps your interest rate so they can pay the costs.