How Do I Know If I Should Refinance?

How Do I Know If I Should Refinance?

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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. The federal government has designs to drop the rates even lower for home buyers, and the same trend may drop rates for homeowners who would like 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. Some consumers with ARMs are deciding to refinance to a fixed rate offering to give them some payment predictability. There are other consumers that refinance to lower their monthly mortgage bills. The rates may be enticing, but banks have also tightened their lending practices. That means that many who applied to refinance were not approved. Lenders are requiring higher credit scores and higher down payments. The decrease in property values for many mortgage holders makes eligibility for refinance more difficult, as some of those consumers have lost significant equity in their homes.
Homeowners wishing to refinance will undoubtedly be tempted by low mortgage rates. While many mortgage holders are grabbing the current round of low interest rates, others are waiting to see if the rates will drop further. Just as rates go down, rates can go up and you could miss a golden opportunity to refinance. Most analysts advise consumers who are looking to refinance to take the bull by the horns and lock in the low rates. To determine if the refinance would be beneficial for you, you need to figure out if the costs and savings would be worth it for the time you plan to own the property. Subtract the estimated new monthly payment from your current monthly payment to determine how much you would save each month under the new rate. Then, add up all the costs of the refinancing. The last step is to calculate when you would earn back any refinance expenses incurred, by dividing the costs by the savings. This is called your break even date. If you plan to be in the house later than your break even date, it is probably worth trying to refinance. Say, for instance, your break even date would be 18 months from the time of your refinance. If you expect to sell the house in a year, then the refinance may not be a good financial move.
It is hard to predict what will happen with mortgage interest rates. If you would like to refinance, it may advantageous for you to lock in the low rates now and not gamble that they will drop enough to make a big financial difference for you.

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To read more on mortgage loans, click to homeloan.meblognow.com.



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