The Federal Reserve announced this week that they were cutting interest rates offered to banks to almost zero. The government hopes the rate cuts will help spur the faltering economy. In response, interest rates for mortgages have fallen this week to the lowest point since 1971. The average rate for a 30 year fixed rate mortgage dipped to 5.19. The rates have been falling for seven weeks in a row. The drop in rates has encouraged many current homeowners to apply for mortgage refinancing. 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. So although there has been an increase in mortgage refinancing applications, many of those are being denied.
Rates are at record lows, but lenders are now more risk averse. They are examining credit reports more closely and will only approve consumers with high credit scores. 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. Obtaining approval for mortgage refinancing will be challenging for those homeowners. In spite of the new lending restrictions, there are many consumers who will still meet the criteria for mortgage refinancing. If you are one of them, you should examine your situation to determine if refinancing makes sense for you. First, add up all the fees and costs of refinancing. For example, sum up your estimates for costs of attorney hours, appraisers and document filing. Determine if you will have to pay a fee if you pay your current mortgage early and add that in to the refinancing total. Then, subtract the new monthly payment from what your current payment is to know how much you would save each month. 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. Last, determine how long you anticipate owning the house. If it is longer than when your break even point would be, then mortgage refinancing would be a good decision. Related Content Refinance rates

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by: marciafreeman
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