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Refinancing to a fixed-rate mortgage

Hopefully most readers have long-ago done this, but it occurs to me that we haven't really discussed that the current interest rate environment is ideal for homeowners to refinance out of adjustable-rate loans and into low-rate fixed mortgages. A huge number of homeowners have been refinancing this year to take advantage of the current historically-low interest rates.

Some think these low rates will be with us for some time, but I personally wouldn't wait around if I had an adjustable-rate mortgage and planned to stay in that house for more than a year or two. The ability to lock in 15- and 30-year rates around 5% is a no-brainer, especially given the alternative of a variable rate that is extremely vulnerable to future inflationary (upward) pressure. Nobody knows when those inflationary winds will start blowing in earnest, but some think we may be seeing the first traces already breezing through the bond market.

At any rate, hopefully this post is redundant and any readers with variable-rate mortgages have already refinanced to low fixed-rates. If not, now is an extremely opportune time to do so.

Normally I'd encourage the 15-year loan for anyone who can swing the higher payment, but given the economic uncertainty and the fact that 15- and 30-year rates are pretty close in many markets, it may be worthwhile for some to consider sticking with the 30-year loan and simply doubling up your principal payments (rather than being locked into the higher 15-year payment). I'm not advocating any radical change in philosophy here. I'm simply acknowledging that in an extremely uncertain economic and job climate, payment flexibility may be more valuable than shaving an extra eighth or quarter off the interest rate. It's real easy to turn a 30-year loan into a 15-year with principal prepayments; it's very difficult to do anything to ease the pressure of a 15-year loan payment if you're unfortunate enough to lose your job at some point.

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