Mortgage Refinancing in the Current Economy
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by: marciafreeman
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Word Count: 434
Prime interest rates were decreased to almost zero percent by the Fed this past week. 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. The recent credit crisis caused them to tighten their lending standards. 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. 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. 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. When those appraisals are done, some consumers are told that their properties are worth less than their mortgages now. Those mortgage holders will have an extremely difficult time receiving approval for mortgage refinancing. In spite of the new lending restrictions, there are many consumers who will still meet the criteria 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. 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. 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.
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