Mortgage rates have fallen to historic lows and the Fed is trying to make sure they stay that way, announcing plans to buy $600 billion more in U.S. Treasury bonds in hopes of keeping interest rates low.
Rock-bottom rates "will make housing more affordable and allow more homeowners to refinance," Fed boss Ben Bernanke has said.
Here are some questions to ask to begin to figure out what makes most sense for you:
Q: Is it time for me to pull the trigger?
A: I wrestled with that question myself and decided the answer was yes. I'm getting out of a 30-year, fixed-rate mortgage at 4.75% and into a 15-year, fixed-rate loan a full point lower.
It makes sense for me because I'm not moving anytime soon, so I'll more than make up the roughly $4,300 I'll pay in closing costs. But these situations are personal, requiring some thinking, discussion and a calculator.
Q: Can I get a substantially better rate?
A: These days, substantially better doesn't mean as much of a drop as it used to. The rule that said you needed a 2 percentage point difference is long gone. You don't even need 1 percentage point anymore. I'd start looking at a half-point and seriously consider making a move at three-quarters of a point.
Falling rates are only one reason refinancing might be a good idea. You could nab better terms if your credit has improved recently.
Q: Will rates go lower?
A: I wish I knew. Mortgage rates - although closely tied to yields on 10-year Treasurys - do not move in lockstep. On the day after the Fed announcement, I sent a quick email to my mortgage broker: "Where are rates today? If they are falling because of the Fed, can I float my rate down?"
He replied that loans had actually repriced slightly higher - the Fed's highly anticipated move was already baked in the cake. Which is why my advice is: If it makes sense to do the deal, do the deal. Don't be greedy. If rates fall significantly lower, you can refinance again.
Q: What numbers are important to look at?
A: Review the estimate of your closing costs. Nationally, the average is $3,741 on a $200,000 loan, according to Bankrate.com, although the average is higher in New York, which is the highest in the U.S. The fees have gone even higher lately, partly due to an increase in bank fees as well as the government requiring lenders' good faith estimates more accurately reflect actual closing costs.