Refinance: Mortgage Rates Are Low, So Why Not?
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by: marciafreeman
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Has it come time 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 best time for you?
The first clue that it is time to refinance mortgage loans is that interest rates have dropped at least two percentage points below what you are currently paying. 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, do not jump to the assumption that your situation fits the formula. You need to stay in the house long enough for the savings from the lower interest rate to outstrip the refinancing fees. If you plan to hold the house only a little while longer, you will not reach the break even point, and will probably lose money on the deal.
Another reason to refinance mortgage loans is to get a lower monthly payment. If you are strapped for cash, being able to put less of your earnings into your mortgage can significantly ease your budget. You can get a lower monthly payment by taking out a regular mortgage with a longer term, which means paying more in the long term but less per month. Or, if you plan not to own your house for much longer, you can drop your monthly bills even lower by taking out 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 tells you its time to refinance, mortgage interest rates are ideal. On the other hand, your personal situation may not make refinancing a sound choice right now. Wait to refinance; mortgage interest rates will fall again. Either way, rely upon your sense of your own financial situation, not outsiders opinions or articles in the paper, to decide when you should refinance.
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