Low Interest Rates Spark Mortgage Refinancing Applications
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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 hope is that low rates in the current struggling economic times will encourage both lenders and borrowers. In response, interest rates for mortgages have fallen this week to the lowest point since 1971. 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. Many consumers have decided to take the opportunity to undergo mortgage refinancing with the low rates. 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. That means that not as many applicants for mortgage refinancing are being approved.
Rates are at record lows, but lenders are now more risk averse. They are examining credit reports more closely and will only approve consumers with high credit scores. 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. That means that those homeowners now have less equity in their homes. 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 considering refinancing, analyze your budget and financial plan to figure out if now is the time to do it. 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. Make sure to include any penalty fees for paying your original mortgage off early. 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. 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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