Mortgage Refinancing With Current Rates
Posted 06/11/09
The Federal Reserve announced this week that they were cutting interest rates offered to banks to almost zero. The hope is that low rates in the current struggling economic times will encourage both lenders and borrowers. As a result of the rate cuts, the rates for mortgage loans dropped to rates not seen since the early 1970s. 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. Banks are requiring higher credit scores and scrutinizing credit histories more than ever before. To secure mortgage refinancing, a consumer must have a higher credit score than was required for a loan for the same amount just a year ago. In addition, home values have decreased strikingly in most markets across the U.S. Consequently, many people now do not have as much equity as they did before the decline in the real estate market. A required step in mortgage refinancing is a current appraisal of the property. Recent appraisals for some homeowners show that they actually owe more on their mortgages than the house is now worth. Obtaining approval for mortgage refinancing will be challenging for those homeowners. 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. First, add up all the fees and costs of refinancing. You will need to add up things like an appraisal, title fees, documentation preparation and lawyer fees. 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. 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.
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