Does Mortgage Refinancing Make Sense for You?
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by: marciafreeman
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The New Year brought with it a little financial relief for consumers. Interest rates for a fixed rate 30 year mortgage were the lowest in decades, well below 5 percent. The drop in interest rates have encouraged many current homeowners to apply for mortgage refinancing. A survey released by the Mortgage Bankers Association shows that applications for mortgage refinancing were at a five year high. Applications increased 25.6 percent from the week prior and the level of activity has not been this high since June 2003.
There have been so many applications for mortgage refinancing that some analysts in the housing sector say that it is causing a tiny boom in real estate. It would be a larger one, they say, if new lending practices were not so tight and values were not so low. Some homeowners no longer have enough equity to qualify for mortgage refinancing, due to lower home values. Nearly half of the homes that were bought in the last 5 years in one county in California have dropped below what their owners bought them for. The higher credit scores and spotless credit records now required for mortgage refinancing mean that fewer consumers now meet the standards. A minimum of 700 is the credit score bar for many banks now.
Since the government announced that it would buy a large number of mortgage backed securities, many expect that mortgage rates will continue to be low for the next quarter. If you are interested in mortgage refinancing, now is a good time to shop around. Most financial advisers tell you that mortgage refinancing is a good decision if the rates are at least 1 percent below those of your original mortgage. In addition, you need to examine your own budget and goals to know if mortgage refinancing will be worth it to you for the time you plan to own the house. First, calculate what your monthly savings would be by comparing your current payment to the estimated payment under the new rate. Then add up all the costs of the mortgage refinancing. Take that total and divide by what you think you will save each month. This total (given in months) will tell you when you will make up the costs of the refinance and start seeing savings each month, also known as when you will break even. If your break even point is longer than the time you expect to own the property, then it may not make sense to undergo mortgage refinancing.
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