Should You Refinance
Posted by admin on Aug 11, 2009
The end of November, the average interest rate on a thirty year fixed rate mortgage was around 5.5 percent. It was the biggest drop in a week since the 1970s. There are plans for the Treasury Department to lower rates to 4.5 percent for those purchasing homes, and may extend those rates to homeowners wishing to refinance. Many homeowners are jumping on the bandwagon to refinance. It was reported the week after Thanksgiving that applications to refinance mortgages were up 200 percent from the week prior. Many who have chosen to recently refinance are trading in an adjustable rate mortgage for the peace of mind of a fixed rate mortgage. Others wish to refinance to simply get a better interest rate or terms to save money on their monthly payments. The rates may be enticing, but banks have also tightened their lending practices. That means that many who applied to refinance were not approved. To qualify for the lowest rates, consumers must now have excellent credit scores and must put in a bigger downpayment. Additionally, a growing number of homeowners no longer have enough equity in their homes to refinance, due to drops in home values.
The low interest rates will continue to entice consumers, particularly those looking to refinance. While many mortgage holders are grabbing the current round of low interest rates, others are waiting to see if the rates will drop further. Just as rates go down, rates can go up and you could miss a golden opportunity to refinance. Many financial experts think that if you are considering a refinance, it would be wise to take the current low rates. If you are wondering if a refinance makes sense for you, the simplest thing to do is calculate your savings and costs for the time you plan to hold the mortgage. Subtract the estimated new monthly payment from your current monthly payment to determine how much you would save each month under the new rate. Then, add up all the costs of the refinancing. Lastly, divide the total cost of the refinance by the monthly savings to figure out how many months it will take you to actually start saving on your monthly payments. That total number of months is known as the “break even point.” If you think you are going to sell the house before you reach that break even point, then you may not want to refinance. Say, for instance, your break even date would be 18 months from the time of your refinance. If you expect to sell the house in a year, then the refinance may not be a good financial move.
It is hard to predict what will happen with mortgage interest rates. If you plan to refinance, consider taking the opportunity to do so under the current low rates before they go up again.
Is Now a Good Time for Mortgage Refinancing?
Posted by admin on Aug 5, 2009
Prime interest rates were decreased to almost zero percent by the Fed this past week. The hope is that low rates in the current struggling economic times will encourage both lenders and borrowers. In response, interest rates for mortgages have fallen this week to the lowest point since 1971. Just over 5.1 percent was where the average fixed rate 30 year mortgage hovered. It was the seventh continuous week that interest rates dropped. Many consumers have decided to take the opportunity to undergo mortgage refinancing with the low rates. Rates may be low, but banks are also not approving applications as readily as they were in the past. Their lending practices have become much stricter, as a result of the upheaval in the credit market this past year. That means that not as many applicants for mortgage refinancing are being approved.
Lenders are being very cautious in the current economic climate, regardless of the rates. Banks are requiring higher credit scores and scrutinizing credit histories more than ever before. Approval for mortgage refinancing today requires that applicants have cleaner credit histories and better credit scores than in the past. There has also been a drop in home values in many places across the country. Consequently, many people now do not have as much equity as they did before the decline in the real estate market. An updated appraisal of the property is usually necessary for any mortgage refinancing. When those appraisals are done, some consumers are told that their properties are worth less than their mortgages now. Those mortgage holders will have an extremely difficult time receiving approval for mortgage refinancing.
There are plenty of homeowners who will meet the new lending standards and qualify for mortgage refinancing. If you are one of them, you should examine your situation to determine if refinancing makes sense for you. The first step is to calculate the costs you will incur to refinance. For example, sum up your estimates for costs of attorney hours, appraisers and document filing. Make sure to include any penalty fees for paying your original mortgage off early. Next, work out how much you would save each month on your mortgage payment under the new interest rates. The third step figures out when your break even point will be, by dividing the cost of the refinance by what you would save each month. The last step is to estimate when you plan to sell the house. Mortgage refinancing may not be the best choice, if you plan to sell the house before you reach that break even date.