Even though some lenders are still at 6% with no closing costs and a free trip to Disneyworld, that rate is way over the top ... and let's face it, BA is never been a leader in low rates.
Like Julie just mentioned there is 5.675% out there (and less) with no points .. but if you have jam-up credit (bulletproof) then I would wait right now, you'll see 5% money in the next 2 or 3 months.
There are so many different factors at play. Letâ€™s assume a few things; you have good credit, job stability, etc. etc. in essence a â€˜good borrowerâ€ and the collateral (the Home) is not an issue for lending purposes.
First, the easy part; what will the rates do? I've been a REALTOR & Mortgage Broker in Kansas for close to 14 years now and the one absolute I know of is that you can't predict what the rates are going to do on the long run (If this was possible I would be living in the Caribbean somewhere.) I have seen many clients "floating" their rates waiting for the bottom (contrary to my advice) only to get burnt with increasing rates, the daily rates will always go up faster than they go down.
Second, when comparing the â€œno costâ€ loan with a loan with closing cost it is important to realize that closing costs are a fact. Someone has to pay them even in a â€œno costâ€ loan. With such loans the lender is simply paying the closing cost out of the profits of the loan (Interest rate). As Julie mentioned, It would be interesting to know the rate for a loan with closing costs from B of A and indeed you will need to get that information for the following process. With that info. in hand, comparing the two loans is actually easy. Take the payment savings from the two loans (the closing cost loan will have a lower payment) and divide this into the total closing cost paid. This number gives you the closing cost payoff threshold, i.e. the number of months until the monthly payment savings in the closing cost loan offsets the closing cost saving in the no cost loan. Then you have to ask yourself the likelihood of you being in the home that long. Generally, if this number is more than 36 months, I recommend paying the closing costs yourself, because you would be saving on the payment from then on. Keep in mind the tax ramification of paying more interest or writing off closing costs and talk with you tax professional.
$200,000 loan for 30 years
No closing costs, rate of 6%, PI payment is $1199.10/mth (saving $1700.00 in closing costs)
Closing costs = $1700.00, rate of 5.625%, PI payment is $1151.31/mth (saving $47.79/mth in payments)
Divide $1700.00 by $47.79 you get a 35.57 mths payoff threshold
Sorry for rambling on, but I hope it helps!
There are many different variables that come into place to give you a truely accurate answer. First, it depends on your credit score but if you have excellent credit and are planning on staying in the home for a long time then you should be able to get better then a 6% rate (currently). Paying $500 or $1000 or $1500 to refinance is irrelevant if you can save an addition 1/4% point.
My next question would be, what is your current rate? If you are at 6 1/4 fixed for 30 years and are not going to be living in the home for a long time, then obviously it probably would not be adventagous for you to refinance.
It is very difficult to pick the bottom on an type of investment, especially interest rates, so if you will be saving money by refinancing then get a few good faith estimates from a couple local, reputable lenders and go for it.
I do have to disagree with Tman on a part of his previous answer to you. While he (nor I) can tell the future, if you look at the monthly average of the 30 year fixed rate over the past 37 years, you will see their has never been a monthly national average where the 30 year fixed was at or below 5% ( here is where you can find this data: http://www.freddiemac.com/pmms/pmms30.htm ).
Althought the Federal Reserve will probably continue to lower what is called the Fed Funds Rate, this is not tied to long term rates and the long term interest rates are more likely to start to rise on inflation fears as the Fed Funds rate gets lower. So as for waiting until you can get a 30 year fixed loan at or below 5%, you are more then likely not going to see that.
I would be interested to see what rate they would give you if you did have to pay closing costs. If you have excellent credit, a 30 year fixed rate is being quoted today at 5.675% with no points. Are the closing costs savings worth the higher interest rate?
If you are going to keep the property and this loan for a short period of time, the answer would be yes. If you plan to spend many, many years in this property with this loan, the answer would be pay the closing costs now and get the cheaper rate.
Your lender should be able to show all the details of both and determine when the break even date would be.