Mortgage Refinancing Boom
Posted 09/14/09
The New Year brought with it a little financial relief for consumers. As of the second week in January, the average interest rate on a 30 year fixed rate mortgage was at 4.89 percent. The drop in interest rates have encouraged many current homeowners to apply for mortgage refinancing. A survey released by the Mortgage Bankers Association shows that applications for mortgage refinancing were at a five year high. Those homeowners are hoping to take advantage of the lower rates before they go up again.There have been so many applications for mortgage refinancing that some analysts in the housing sector say that it is causing a tiny boom in real estate. It would be a larger one, they say, if new lending practices were not so tight and values were not so low. Value decreases have caused decreases in homeowner equity, and in some cases homeowners now own so little equity that they are not eligible for mortgage refinancing. In Ventura County in California, for example, it is estimated that of the properties purchased there within the last five years, about 40 percent are now worth less than their purchase prices. Other homeowners who may have been approved for mortgage refinancing just a year ago may not have a high enough credit score to qualify under the new lending practices. Some banks are now requiring a credit score of 700 or higher to be eligible for the low rate mortgages.
Since the government announced that it would buy a large number of mortgage backed securities, many expect that mortgage rates will continue to be low for the next quarter. If you are interested in mortgage refinancing, now is a good time to shop around. The general rule is that if the interest rate is 1 percent lower than your current rate, then it would be wise to undergo mortgage refinancing. It is, however, more important to look at your particular situation and determine if the cost and savings over the time you intend to own the mortgage makes sense. The first step is to figure out how much you would save each month with the new interest rate by subtracting the new estimated monthly payment from the one you make now. Tally up the actual mortgage refinancing costs, such as an appraisal, lawyer and documentation fees and other closing costs. Divide your refinancing costs by your estimated monthly savings. This total (given in months) will tell you when you will make up the costs of the refinance and start seeing savings each month, also known as when you will break even. If you plan to own the house beyond when you break even, then mortgaging refinancing should be considered.
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