Should You Refinance Your House in Today's Economy?
03/08/09
If you want to refinance your house, right now may be the time to do it. If you have good credit and a high interest rate on your mortgage, then the mortgage crisis has, ironically, created an opportunity for you. A refinance can benefit your finances remarkably, especially if you bought your property during a high in interest rates.
Because the Fed has repeatedly slashed federal rates over the past several rates, mortgage interest rates are the lowest they have been in years. Although Federal rates are not tied directly to mortgage rates, lenders tend to adjust mortgage rates to follow the same upward or downward trends.
Here are a few details to take into consideration when you decide whether to refinance:
* Will any savings from a lower interest rate be offset, or surpassed, by the charges from refinancing fees? There are a number of extra fees associates with a refinance. If your interest rate is already fairly low, you may find that the money you save on interest payments is eaten up by closing charges.
* Similarly, will a longer loan term add enough extra interest payments to completely offset the savings you might have gotten through a lower interest refinance? 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.
* Avoid variable rate mortgages when you refinance. Even though the variable rate mortgage's monthly payments may be lower than the fixed, rates are so low right now that you are less likely to benefit from a rate drop after the introductory period is over.
* Do not wait for rates to drop 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 rates do start rising, do not wait even longer in the hope that they will drop again. Grab a relatively low rate while you can. 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.
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