When Is the Best Time to Refinance Mortgage Loans?
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by: marciafreeman
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Is the time ripe to refinance? Mortgage interest rates in May 2009 are temptingly low, so you may think now is the idea time to refinance. But is it the right time for you?
The first sign that it is a good time to refinance mortgage loans is that the average interest rate is two or more points below the interest rate on your existing mortgage. This difference between interest rates is large enough that it is likely to make up for what you will need to pay in refinancing fees. However, you may find that the formula does not fit your situation. If you plan to stay in the house only a little while longer, you may not hold the mortgage long enough to see a savings from the lower interest rate, no matter how much lower the new rate is.
Another reason to refinance mortgage loans is to get a lower monthly payment. If you are pinched financially, cutting the amount you pour into your mortgage each month can reduce your stress significantly. You can lower your mortgage payments by refinancing to a mortgage with a longer term, which means a higher total bill but a smaller monthly bill. Or, if you plan to sell your house within the next few years, you can get even lower monthly rates with a non amortizing loan. When you refinance mortgage loans with a non amortizing loan, you pay only the interest on the loan for a grace period of several years. At the end of the grace period, you must repay the capital at an accelerated pace, or may even need to pay it all off at once. However, refinancing or selling the property before the end of the grace period nets you much lower monthly payments, and you repay the remainder of the loan with the sale proceeds.
If your analysis of your financial situation tells you that right now is a good time to refinance, mortgage interest rates as of May 2009 are ideal. On the other hand, if your analysis suggests that you will not recoup your money, refinancing is a poor choice. In that case, wait to refinance; mortgage rates will dip again. Either way, your own financial situation is the best and only guide to when its time to refinance.
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