July 2nd, 2010

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Rates have dropped. Rates are great. Rates are very low. All true. But I have seen this show so many times before, I know how the script goes each time.

When interest rates drop everyone gets incredibly excited.

Interest rates become cocktail party chatter. The media stirs the pot, because, well, that is the media’s job, to stir the pot and draw eyeballs to their advertisements that show in between segments. So every interest-rate drop is a “spectacular plummet”, every interest-rate increase is a “major spike”, every stock market move over 50 points is the end of the world, every fire is a conflagration, and every mole hill is a mountain.

To put all of this into context is a good idea.

A couple of weeks ago interest rates were 4.875% with zero points, and had been that way for quite a while (give or take). Over the course of not even a week, interest rates fell .375% to 4.5% with zero points. These interest rate quotes I am talking about are for Conforming loans only (and are subject to change at anytime), which are loans up to $417,000. For purposes of this article we will restrict interest rate quotes to Conforming loans.

Now, I am not saying that a .375% drop is not nice. Also, I’m not saying that interest rates are not at lows that we have not seen in 50 years. I am also not saying that these interest rates are not worth looking into to see if you should refinance. What I am saying is that the hysteria that I see in people that contact me or talk about refinancing in the media scares me. I have heard people say that they “heard that interest rates were as low as 3%.” Interest rates are not 3% anywhere on this planet, unless you are doing a short term adjustable-rate mortgage, or paying many, many points. I have heard people say, “my neighbor just refinanced to 2.99%…”, no, he did not. I promise you.

Measure carefully

And the most important thing to know about refinancing is that it needs to make sense. Some people think that just because they can get a low interest-rate that a refinance automatically makes sense. But I urge you to measure how much you are spending to refinance, how much you’ll be saving every month, take into consideration that you might be restarting your loan onto a new term of 30 years, and all that needs to be taken into account. You’d be surprised how many times people are refinancing, and really should not be.

Rates have been very low for years, just about everyone I know has a fixed rate around 5% to 5.50%. So to refinance to 4.5% is suspect, to me. I’d really need to take a hard look at the savings. Saving .5% to even 1% does not save as much as you think, especially when you take into account closing costs to the title company, lender, appraiser, state-county-city, etc.

Also, a .375 drop in interest rates represents a 7.7% overall drop in the general interest rate level. Again, while this is a nice occurrence, it is not as if there is a 50% off firesale, and interest rates that were almost 5% last week, are now 2.5%.


I see behavior that reminds me of herd thinking, and that frightens me. Everybody slow down, ask a lot of questions, and make sure that your refinance makes sense before you pull the trigger and pay a bunch of closing costs, spend a lot of time, and do a lot of paperwork to execute one.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.


  1. Rizwan Kirmani says:

    Great article, Brian. I am glad I had you as my mortgage broker.

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