Refinance Mortgage Guidelines
Posted 04/15/09
Interest rates for mortgage loans continued to decrease the last week of March. Rates were at the lowest point since Freddie Mac began tracking weekly mortgage data in 1971. Mortgage rates have been low the past several months, but they dipped even lower after the Federal Reserve made a decision to purchase $1.2 trillion in mortgage backed securities this past week. The low rates are welcomed by consumers who have been battered by the struggling economy and slump in home values. Homeowners have been bombarded with refinance mortgage advertisements. And they appear to be jumping at the opportunity to grab the new lower rates. According to the Mortgage Bankers Association, during the third week of March, mortgage applications were up 3 percent from the prior week and 80 percent of those were for consumers considering a refinance. Mortgage payments can drop several hundreds of dollars a month for consumers who qualify for the lower rate offers. In this current economic downturn, most consumers are looking for ways to cut costs and one way to do that is through a refinance. Mortgage payments are often the largest expense in a budget. For those who qualify for the new lower rate offers, the savings over time can be significant.For those who refinance, mortgage payments can be lower, but the overall costs of such a decision must be compared with the savings. Doing some simple calculations can help you determine if refinancing right now makes sense for you. First, determine how much you will save each month on your payments. To do this, subtract the estimated payment under the new interest rate from your current monthly payment. Next, add up all the costs of the refinance. Mortgage origination fees, documentation costs, lawyer hours and appraisals are some examples of the costs. The third step is to determine your break even point, or when you will recoup your costs. Do this by dividing your costs by the estimated monthly savings. You now know how many months it will be until you break even. If your break even point is less than the time you expect to own the property, then refinancing may not be such a sound financial decision. If, however, you plan to own your house past the time when you break even, refinancing probably makes sense. Refinancing is a very personal decision that has to make sense for your financial situation. But these simple calculations give you some guidelines to help you know whether it is something you should explore.