The past month has seen a significant rise in mortgage refinancing applications. Rates offered on the average fixed rate mortgage were at the lowest point in decades. Some consumers are taking a chance to see if the interest rates will be lowered more in the coming months, as others are not taking a risk and applying for mortgage refinancing now. Regardless of whether you apply for mortgage refinancing under the current rates or take a gamble, make sure you take a hard look at your finances to determine if you even qualify for a new mortgage. Banks are picky, as well they should be. The loose lending practices of the past decade have added fuel to the fire of the housing bust. As a result of the credit crises and decline of the real estate market, lenders have significantly tightened their lending standards. To qualify for mortgage refinancing, consumers must have more equity in their homes now. Credit scores of 700 or higher are becoming the norm for approval. This all translates to fewer approvals for mortgage refinancing, in spite of the significant rise in number of applicants.
Deciding if mortgage refinancing with the current low rates makes sense for you can be confusing. The most important thing to note is if your home is now valued at less than you owe on your mortgage. This is the unfortunate case many homeowners who purchased in areas experiencing declining home values are in. You will not be approved for mortgage refinancing if your current mortgage is higher than the value of your home. And many banks are now requiring that you have at least 20 percent equity in your property before you can even be considered for mortgage refinancing. If you pass the home equity test, move on to calculating the cost and benefits of mortgage refinancing.
First, subtract the estimated monthly mortgage payment with the new interest rate from your current monthly payment. Add up all the fees you will incur by undergoing the mortgage refinancing. Much like you did when you obtained your original mortgage, you will incur costs for documentation work, appraisers, attorney hours and bank fees. You will need to know how long you plan to own the house for the final calculation. Divide the closing costs of the mortgage refinancing by the monthly savings you would gain under the new interest rate. This will tell you how many months it will take for you to recoup the costs of the mortgage refinancing (know as break even.) If it is more than the duration you plan to own the property, then mortgage refinancing is not advisable. On the other hand, mortgage refinancing may be a good decision if you will break even before you plan to sell the house.

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by: marciafreeman
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