Interest rates for mortgages dropped recently to an average of just over 5.5 percent for a 30 year mortgage. 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. The last week in November showed a 200 percent increase in refinance applications from just the week before. 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. Rates could just as quickly go back up, though, so you have to decide if you are willing to take the gamble. Most analysts advise consumers who are looking to refinance to take the bull by the horns and lock in the 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. Next, determine how much the fees and costs of the refinancing will run you. The last step is to calculate when you would earn back any refinance expenses incurred, by dividing the costs by the savings. 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 plan on owning the house for 3 more years, then the refinance is beneficial.
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.

View PDF | Print View
by: marciafreeman
Total views: 66
Word Count: 485