Refinance rates

There was a large increase in the number of consumers applying for mortgage refinancing in the last month. Rates offered on the average fixed rate mortgage were at the lowest point in decades. Many homeowners are hoping to take advantage of the low rates, while others are holding out to see if the rates drop more before they grab an opportunity for mortgage refinancing. Even if the interest rates are low and you wish to undergo mortgage refinancing, it is important to examine your personal financial situation before you apply. Lenders are requiring much more of their borrowers now. One of the factors that led to the current woes in the housing market was the slack standards many banks had regarding home loans. Lenders have adopted stricter lending practices since the meltdown in the credit market. They are requiring higher down payments on new loans and higher equity for mortgage refinancing. Credit scores of 700 or higher are becoming the norm for approval. This all translates to fewer approvals for mortgage refinancing, in spite of the significant rise in number of applicants.

Deciding if mortgage refinancing with the current low rates makes sense for you can be confusing. First, determine if you owe more on your mortgage than your property is worth. This is the unfortunate case many homeowners who purchased in areas experiencing declining home values are in. Do not apply for mortgage refinancing if you owe more than your home is worth. And many banks are now requiring that you have at least 20 percent equity in your property before you can even be considered for mortgage refinancing. If you pass the home equity test, move on to calculating the cost and benefits of mortgage refinancing.

First, subtract the estimated monthly mortgage payment with the new interest rate from your current monthly payment. Then work out what the total cost of the mortgage refinancing will be. Much like you did when you obtained your original mortgage, you will incur costs for documentation work, appraisers, attorney hours and bank fees. You will need to know how long you plan to own the house for the final calculation. Divide the closing costs of the mortgage refinancing by the monthly savings you would gain under the new interest rate. This will tell you how many months it will take for you to recoup the costs of the mortgage refinancing (know as break even.) It probably is not wise to undergo mortgage refinancing if that number is larger than the number of months you anticipate owning the house. On the other hand, mortgage refinancing may be a good decision if you will break even before you plan to sell the house.