The end of November, the average interest rate on a thirty year fixed rate mortgage was around 5.5 percent. It was the biggest drop in a week since the 1970s. The federal government has designs to drop the rates even lower for home buyers, and the same trend may drop rates for homeowners who would like to refinance. A lot of consumers are taking the opportunity to refinance their mortgages now. It was reported the week after Thanksgiving that applications to refinance mortgages were up 200 percent from the week prior. Many who have chosen to recently refinance are trading in an adjustable rate mortgage for the peace of mind of a fixed rate mortgage. There are other consumers that refinance to lower their monthly mortgage bills. Unfortunately, lending standards have become much more restricted as a result of the credit crisis. That means that many who applied to refinance were not approved. To qualify for the lowest rates, consumers must now have excellent credit scores and must put in a bigger downpayment. Additionally, a growing number of homeowners no longer have enough equity in their homes to refinance, due to drops in home values.
The low interest rates will continue to entice consumers, particularly those looking to refinance. While many mortgage holders are grabbing the current round of low interest rates, others are waiting to see if the rates will drop further. Just as rates go down, rates can go up and you could miss a golden opportunity to refinance. Many financial experts think that if you are considering a refinance, it would be wise to take the current low rates. To determine if the refinance would be beneficial for you, you need to figure out if the costs and savings would be worth it for the time you plan to own the property. Subtract the estimated new monthly payment from your current monthly payment to determine how much you would save each month under the new rate. Next, determine how much the fees and costs of the refinancing will run you. Lastly, divide the total cost of the refinance by the monthly savings to figure out how many months it will take you to actually start saving on your monthly payments. That total number of months is known as the "break even point." If you think you are going to sell the house before you reach that break even point, then you may not want to refinance. For example, it may take 15 months to recoup the costs of the refinance. If you expect to sell the house in a year, then the refinance may not be a good financial move.
It is hard to predict what will happen with mortgage interest rates. If you would like to refinance, it may advantageous for you to lock in the low rates now and not gamble that they will drop enough to make a big financial difference for you.
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