Refinance rates

If you have been considering a refinance of your house, now may be the time to act. Ironically, the debt crisis created by bad mortgages has created excellent opportunities for people who can prove they are capable of paying off their mortgages, and who have a higher interest rate on their current mortgages. You can reap the most benefit from a refinance if you bought your house during one of the times during the last couple of decades when interest rates hit historic highs.

Because the Fed has repeatedly slashed federal rates over the past several rates, mortgage interest rates are the lowest they have been in years. While Federal rates do not directly impact mortgage interest rates, over time, mortgage rates tend to follow the same trends … upwards or downwards.

When you consider whether a refinance is right for you, here are a few questions to take into account:

* Will the extra fees wipe out the money you would save with a lower interest rate? A refinance may bring with it a number of fees. If the difference between your previous interest rate and the new interest rate is small, you may discover that the money you spend on fees exceeds your potential savings.

* In the same vein, does the new mortgage you are considering offer a longer term that will add extra interest payments to your final bill? If so, the added interest payments may offset any savings from the refinance, even if the interest rate itself is lower. Often, when people refinance because they want lower monthly payments, the bank offers them a mortgage loan with a lower interest rate as well as a longer term. The result is a temptingly low monthly payment. However, the extended term also allows more interest to accrue. Use a loan calculator to determine whether you are really saving money, and if you are not, either decide to pay more than the minimum each month, or do not refinance.

* Refinance with a fixed rate mortgage, not a variable rate mortgage. Variable rate mortgages generally offer lower monthly payments than fixed rate mortgages, but you are likely to lose the benefits of the low interest rate when the economy booms and Federal interest rates rise again.

* Do not waste time waiting for interest rates to drop even lower before you refinance! Interest rates are reaching record lows already. If you wait to refinance, you may find yourself caught in a tide of rising rates. If you do find that rates have started to rise already, catch them when they are still relatively low. Refinance as soon as possible, and get a rate that is low enough to satisfy you, rather than wasting time holding out for an even lower rate that might never happen.

Even a weak economy has its bright side. If you weigh your options carefully, you can take advantage of the current economic situation, and refinance your house at considerable savings to you.

The decision to refinance mortgage loans is a large one. There is a lot of work to do to prepare: You need to organize your finances, do stacks of paperwork, and have meeting after meeting with your mortgage agent, and at the end, you must pay a four figure bill. You don’t want to get halfway through the process before deciding that it’s not a good time to refinance mortgage loans, or that the lender you chose isn’t the right one for you. Here are a few things you need to know when you’re considering a refinance:

* Interest rates throughout the real estate market are going up. They were low throughout the first half of 2009, but appear to be rising starting in July. Interest rates are unlikely to dip any farther and are likely to keep going up, so if you want a low interest mortgage, now is the time to act.

* It is an excellent time for a fixed rate mortgage. Although fixed rate mortgages typically have interest rates a little higher than comparable variable rate loans, the extra percentage points are worth it for the chance to lock in the prevailing low rates.

* If you don’t want to wait for 2%, 1% may be more than low enough. The traditional advice is to not refinance unless mortgage interest rates are at least 2% below the interest rate on your current mortgage. However, some experts now think lowering your interest by 1% may be a good enough reason to refinance. Use a mortgage calculator to work out whether you would save if you refinance mortgages at the going interest rate, even if the rate is less than 2% under your current rate.

* Beware predatory lenders. Lenders with unethical business practices are more common than ever before because the credit crunch has produced a bumper crop of homeowners and would be homeowners who are desperate for any mortgage for which they can qualify. Refuse any mortgage whose fees total more than 1% of the amount of the loan, or which has a yield spread premium. Also beware lenders who advertise aggressively, recommend offsetting higher interest rates by frequent reselling or refinancing, or use high pressure tactics to make you sign. If you refinance mortgages through them, you can be assured of an expensive mortgage that will be a millstone around your neck for years to come.

If you have been thinking that it’s time to refinance mortgage loans, you’re right. Rates are about as low as they can go and are going to rise in the near future, and legitimate lenders are eager to lend to creditors with good credit ratings. If you have high interest loans from the boom of the last several years, now is a perfect time to refinance mortgage loans and lower your bills.

Do you need a home mortgage? How badly are you in need of a home mortgage? Some mortgage lenders hope you’ll need a mortgage very badly indeed, and when you’re backed into a bad spot, they’re exactly the kind of mortgage lender you don’t need. Here are the top five signs to watch out for when you’re considering mortgage lenders:

* Aggressive marketing. Borrowers seek out good home mortgage lenders; legitimate and reputable lenders do not need to hunt down borrowers. Predatory mortgages, on the other hand, are what one expert called “loans seeking consumers.” Predatory lenders use hard sell tactics, junk mail campaigns, and telemarketing, and even more suspiciously, they market door to door. Avoid any lender who uses these marketing tactics.

* High interest rates. Interest rates on bad mortgages are usually markedly higher than the market average. Some lenders target borrowers with poor credit ratings, since such borrowers have difficulty getting a home mortgage from a legitimate lender and are more likely to accept a high interest rate. Other lenders prefer to target inexperienced borrowers who are unaware that they are paying too much for their mortgage. Bad lenders often tell borrowers to handle the high interest rate by frequent “flipping,” or refinancing, of the home mortgage.

* Bloated fees. Legitimate mortgage fees might look staggering on paper, but they don’t come to more than 1% of the amount of the mortgage. Predatory mortgages usually saddle borrowers with fees of 5% or more.

* A kickbacks known as a yield spread premium. This is a well disguised piece of financial jargon for a kickback to the broker for convincing you to accept a much higher interest rate than you are entitled to. A legitimate loan will never have a yield spread premium on any account. If you are offered a home mortgage with a yield spread premium, look elsewhere. Not only have you been offered a bad mortgage, but you have been told indirectly that you are qualified to get a much better interest rate.

* Prepayment penalties. This is a fee you will pay if you want to pay off or refinance the loan early. Good mortgages rarely have any prepayment penalty, and when they do have a penalty, the term during which the penalty applies is short. However, bad mortgage lenders frequently dissuade you from refinancing with another lender by tacking on prepayment penalties that apply for three years or more after you sign for the mortgage.

If any of these signs apply to a mortgage you are offered, reject the offer and find another lender. No matter how badly you need a home mortgage, you don’t need one as bad as the ones these lenders will sell you.