Money comes from investors who invest in mortgage notes.  The most popular housing investments (at least before the housing bubble burst) are Mortage Backed Securities and Housing Bonds.  The interest rates that you are charged on your houses, a portion of that goes to the investor (which is their return on their investment) and the rest of the interest goes back to the bank.

 

 

The mortgage rates change daily and can change several times throughout the day.  Predicting what rates will do is like trying to predict the stock market, it's all speculation.  Part of it has to do with supply and demand.  If investors have bought more notes then there is a demand for, rates go down (which is what happened).  With all the foreclosures, banks aren't crazy about originating loans with risky people so they're making it harder for customers to qualify for loan (less loans).  (Such as most companies won't consider doing a loan for someone with a credit score of 620 or less when it was 580 as of Feb09.  They are also changing their guidelines so that you can only go up to 85% cash out of the value of your house whereas right now you can go up to 95% cash out.)

 

No one can really predict that.  Banks don't want rates to go below 4% because they need to pay the investors for investing in the loans, the banks need money in order to survive as a business and they need a cushion to handle all the foreclosures they're experiencing.  You may see rates that low if you have a credit score over 800 and a loan to the value of your house under 30%.  Let's put it this way, it's not impossible but rates are more likely to stay above 4% and go up then they are to go below.

 

Depends on the situation.  Most experts say you should recover your closing costs in 4-5 years.  Of course, if you don't intend on staying in your house that long it doesn't makes sense to have closing costs that take you that long to pay off.  If you have a great loan with a great monthly savings and the lowest possible rate you qualify for, then it is most definitely worth the closing costs to refinance.  The Money Store allows you to roll all the closing costs into the price of the loan which most people find to be very convenient. 

 

The only times it may be better to accept a higher rate and no closing costs is when you do not plan to stay in your house for more than a couple years or the loan size is relatively small (under $100,000).  Closing costs may run you anywhere from $4,000 to $10,000 (with The Money Store you can roll the closing costs into the loan so you don't have to bring money to the table) but the lower rate may save you anywhere from $30,000 to $150,000 over the life of the loan in the form of compound interest.  So one way or the other, you end up paying and it's usually wiser to just pay the closing costs then end up paying more in the long run.