Refinance rates

In an effort to breathe life back into the struggling real estate market, the federal government made a decision at the end of November to purchase $500B of mortgage backed securities. Since then, interest rates for mortgage loans have been shrinking. Rates for mortgage loans are at the lowest point since Freddie Mac began following the trends in rates 28 years ago. Lower rates seem to be the one silver lining for consumers caught in the economic downturn, particularly for those who could not afford to purchase a home during the run up in the housing market. The lower rates have encouraged some of those people to jump into the real estate market and take on new mortgage loans. And many current homeowners are refinancing original mortgage loans under the new interest rates. As a result of the credit crisis, however, lenders have adopted much stricter lending requirements than they had just a year ago. They now require higher credit scores and more equity, which means that many who may have qualified for refinance in past years may not qualify now. Many property owners in the parts of the country where values have dropped radically are struggling to meet the equity requirements for a refinance. They now have less equity and may not qualify for refinancing for that reason. Calculating the costs and benefits of refinancing mortgage loans, as well as examining credit files, credit scores and current equity should be part of any decision to refinance.

If you wish to refinance, shop around online to determine the interest rates and types of mortgage loans for which you might be eligible. Next, do the math to determine if a refinance is the right thing for your financial plan and budget. The most common reason for refinancing is to bring down the payments on mortgage loans. Calculate what the monthly savings would be for you by subtracting the estimated monthly payment under the new rate from your current payment. You will then need to calculate what the actual refinance will total. For example, you will need to pay for an appraisal, fees for the title and lawyer fees. The next step is to figure out your “break even point,” or when you will actually start saving each month. You do this by dividing your total estimated cost for the refinancing by your estimated monthly savings. The number will be given in months. If you expect to sell the house before you break even, refinancing might not be the best financial move. If you expect to sell the house sometime after you break even, refinancing would probably be beneficial. If the calculations indicate savings for you, then you too could benefit from one of the new low interest rate mortgage loans.