In recent weeks, mortgage rates have shot to the highest levels since Thanksgiving. That rise has left procrastinators wishing they had refinanced their home loans last month, when interest rates on 30-year fixed mortgages were below 5 percent.
Today, with rates at roughly 6 percent, the mortgage refinancing boom is cooling.
Economists and financial planners are trying to predict where rates go from here. Many believe the Federal Reserve will allow long-term rates to keep rising. Earlier in the housing crisis, the Fed purchased huge amounts of mortgage-backed securities, a strategy intended to help hold down interest rates. But Fed watchers say the central bank is likely to stand aside now, allowing market forces to nudge up rates.
Others see a different scenario. This past week, Mark Zandi, the chief economist at Moody's Economy.com, told NPR the recent rise in interest rates reflects, at least in part, a belief that the economy is perking up enough to rekindle inflation.
But he disagrees with those who think the economy soon will be running too hot. "My sense is that they are getting a little ahead of themselves," he said. He predicts that with the recession dragging on, mortgage interest rates will slip back down to about 5 percent.
The Mortgage Question: To Pay Off Or Hold Off?
Larry Rosenthal, president of Financial Planning Services in Northern Virginia, is among those who see rates rising. He is advising clients to lock in now if they are planning to refinance old mortgages or buy new homes. He said some clients — shaken by the volatility in stock and bond markets — are considering prepaying their mortgages, even if they already have low interest rates. Paying off a mortgage may seem like a safer investment than plowing more money into markets.
Whether it makes sense to pay off a mortgage depends on individual circumstances, he said. People who plan to stay in their current homes well into retirement, and who don't expect large monthly pension checks, are wise to pay off their mortgages, Rosenthal said. After seeing all the recent troubles with excessive borrowing, "people are running toward the notion of getting out of debt," he said.
But for people living in markets where home prices are still dropping, it may not make much sense to pay off the mortgage, he cautioned. "I still see homes as having downward price pressures," he said. "You could be investing in a depleting asset."