After slowly rising throughout 2006, mortgage interest rates have recently dropped. This leaves many Texas homeowners wondering if now’s a good time to take another look at refinancing.

Nationwide, many homeowners are already taking the plunge, according to the September 2006 Economic & Housing Outlook from Fannie Mae.

Thirty-year fixed-rate mortgages dropped from 6.80% for the week ending July 20 to 6.47% as of September 7. Fannie Mae also reports that about eight out of nine refinancing loans this year include a cash-out component, with homeowners using the extra cash for paying down credit cards, making home improvements, and for general consumer spending.

From ARMs to fixed rate
Fannie Mae predicts the recent drop in mortgage rates will see more homeowners with adjustable rate mortgages (ARMs) trying to switch to a fixed-rate option.

ARMs usually offer a much lower initial interest rate than fixed-rate loans, but the interest rate fluctuates over the life of the loan. Agreements set maximum and minimum rates, but ARMs that were purchased a few years ago when rates were lower have recently been headed the other way – meaning mortgage payments for those homeowners have been rising.

Fannie Mae reports that it’s the first time in more than five years that borrowers are generally paying higher interest rates after refinancing. Now it’s all about preparing for when interest rates rise again, as the Federal Reserve hints they will.

Consider if you were able to get an adjustable rate mortgage at 3.3% for three years – three years ago. Given today’s rates, low as they still are compared to 10 years ago, your payments are likely to have gone up dramatically during this past year. That’s extra money many consumers don’t have. That’s why refinancing now, to a fixed rate that won’t change over time, is very appealing to homeowners who have adjustable-rate mortgages. In fact, Fannie Mae reports that the refinance volume should stay strong through this fall, then slow down as we get into 2007.

The federal government is also stepping in to help avoid the financial hole consumers can get into with non-traditional mortgages – like ARMs and interest-only mortgages. New rules will require all lenders to point out the risks that come with non-traditional mortgages.

Tips for doing it right
If you’re considering refinancing, no matter what type of mortgage you currently have, shopping wisely is the way to get the best deal. After all, a mortgage – whether it’s for a home purchase, refinancing, or even a home-equity loan – is a product, so the price and terms are usually negotiable. That’s why, when making any large financial investment, it’s usually a good idea to shop around.

Where you go is up to you. Loans are available from thrift institutions, commercial banks, mortgage companies, and credit unions. You can also get a home loan through a mortgage broker, who will act as a kind of middleman to help you negotiate the sometimes complicated world of refinancing.

Be sure to get quotes from several different lenders. All financial offers are not the same, so you may find you’ll get a better deal from your credit union than you will from your bank. It pays to shop around. Your Texas REALTOR® can also offer recommendations. So take advantage of those professional relationships, because they could save you money.

Homeownership is where it’s at
No matter what you choose to do, know that your home is still a very wise and valuable investment. Housing activity is slowing a bit, but Fannie Mae’s September outlook says the U.S. will likely have the “third best year on record for the housing industry, surpassed only by 2004 and 2005” – and Texas real estate experts are saying the same thing.

Home values, on average, continue to rise throughout Texas, which adds to your personal wealth because of your growing home equity. There’s no question that home is where security lies – both financially and otherwise – for many Texans.