Historically Low Rates and Mortgage Refinancing
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by: marciafreeman
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The Federal Reserve announced this week that they were cutting interest rates offered to banks to almost zero. The government hopes the rate cuts will help spur the faltering economy. As a result of the rate cuts, the rates for mortgage loans dropped to rates not seen since the early 1970s. Just over 5.1 percent was where the average fixed rate 30 year mortgage hovered. It was the seventh continuous week that interest rates dropped. Many consumers have decided to take the opportunity to undergo mortgage refinancing with the low rates. But banks are not lending as easily as they were a year ago. 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. Approval for mortgage refinancing today requires that applicants have cleaner credit histories and better credit scores than in the past. 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. An updated appraisal of the property is usually necessary for any mortgage refinancing. 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. The first step is to calculate the costs you will incur to refinance. For example, sum up your estimates for costs of attorney hours, appraisers and document filing. Determine if you will have to pay a fee if you pay your current mortgage early and add that in to the refinancing total. Next, work out how much you would save each month on your mortgage payment under the new interest rates. Thirdly, calculate how many months it will take to actually start saving (know as your "break even" date), by taking the cost of the refinancing and dividing it by your monthly savings. The last step is to estimate when you plan to sell the house. If it is longer than when your break even point would be, then mortgage refinancing would be a good decision. Similar Entries Home equity loan Refinance Mortgage rates Home mortgage Mortgage calculator
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More information about refinance, goto www.getsmart.com/refinance.
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