Mortgage Loans Drop for Tenth Week in a Row
Posted by admin on Apr 22, 2009
In an effort to breathe life back into the struggling real estate market, the federal government made a decision at the end of November to purchase $500B of mortgage backed securities. Consequently, mortgage loans have been offered at lower and lower rates. Freddie Mac starting tracking interest rates almost 30 years ago and the rates today are lower than they have ever been during that period. Lower rates seem to be the one silver lining for consumers caught in the economic downturn, particularly for those who could not afford to purchase a home during the run up in the housing market. The lower rates have encouraged some of those people to jump into the real estate market and take on new mortgage loans. And many current homeowners are refinancing original mortgage loans under the new interest rates. As a result of the credit crisis, however, lenders have adopted much stricter lending requirements than they had just a year ago. They now require higher credit scores and more equity, which means that many who may have qualified for refinance in past years may not qualify now. Many property owners in the parts of the country where values have dropped radically are struggling to meet the equity requirements for a refinance. The drop in values have left them holding less equity in their homes. Calculating the costs and benefits of refinancing mortgage loans, as well as examining credit files, credit scores and current equity should be part of any decision to refinance.
If you are considering refinancing, begin your research by finding out what rates and terms for mortgage loans are available to you. Then do some simple calculations to help you decide if refinancing makes sense for your current and future financial situation. The most common reason for refinancing is to bring down the payments on mortgage loans. To determine how much you would save, subtract the anticipated new monthly payment from the loan payment you make now. You will then need to calculate what the actual refinance will total. Just like when you obtained your original mortgage, you will have bank fees, documentation and title costs, attorney fees and appraisal costs. The next step is to figure out your “break even point,” or when you will actually start saving each month. You do this by dividing your total estimated cost for the refinancing by your estimated monthly savings. The number will be given in months. If you expect to sell the house before you break even, refinancing might not be the best financial move. If you plan to own the house past that break even point, then consider refinancing. If the calculations indicate savings for you, then you too could benefit from one of the new low interest rate mortgage loans.
When Will a Refinance Save You Money?
Posted by admin on Apr 13, 2009
How do you know when to refinance your home? Deciding when to refinance may seem more like an art than a science, but it is just a matter of numbers. Walk through the steps, and at the end you will know whether or not now is the time for you to refinance.
First, what interest rate will you be able to get? A good credit score and low federal interest rates will both act to lower your potential interest rate. This step is partly dependent on the lending bank’s evaluation of you and your financial situation, so you will not know your exact rate until the lender makes you an offer, but reading online sources can give you a good general idea of what to expect.
When you have a general idea of what your interest rate will be, decide how long a mortgage term you prefer, then use an online loan calculator to calculate what your monthly payments will be when you refinance. (Ideally the term of your new mortgage will be equal to the amount of time left on your old mortgage. Otherwise, a longer term will let interest compound longer, adding extra money to the total and potentially offsetting the savings you would have seen from a refinance.) Also work out the likely difference between your monthly payments after you refinance and the amount you currently pay per month.
Then work out how much the fees and taxes of a refinance will add to the total. Beware these “hidden” costs: An average refinance frequently costs $2000 to $3000, and sometimes costs even more.
When you know exactly how much refinancing will cost, divide it by the difference between your current monthly payments and your future monthly payments. The result is the period, in months, that it will take you to break even after you have completed the refinance. For example, if you pay $1200 right now, you would pay $1000 per month after the refinance, and refinancing would cost $2200 in taxes and fees, it will take you 11 months to break even. After that, you would start saving money. Will you be in your house long enough to reap the benefit of a new mortgage? If the answer is no, then you would be better off staying with your old mortgage. However, if your answer is yes, then right now is the perfect time to refinance.
As you can see, knowing when to refinance is simply a question of math. None of the variables are set until you receive a formal loan offer from your bank, but you should be able to make a good estimate of what your bank will offer you. Apply these steps to choose when to refinance, and you and your family will enjoy greater financial security for years to come.