Should You Refinance Your House in Todays Economy?
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by: marciafreeman
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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.
Mortgage interest rates have dropped substantially over the past several months because the Fed has repeatedly lowered federal rates to stimulate the economy. Although Federal rates are not tied directly to mortgage rates, lenders tend to adjust mortgage rates to follow the same upward or downward trends.
When you consider whether a refinance is right for you, here are a few questions to take into account:
* Will any savings from a lower interest rate be offset, or surpassed, by the charges from refinancing fees? 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, the bank offers them a mortgage with a longer term as well as lower interest rates, leading to attractively low monthly payments. 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. Even though the variable rate mortgages 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 waste time waiting for interest rates to drop even lower before you refinance! Interest rates are already at a record low. 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 and lock in a lower rate as soon as possible, getting an interest rate that saves you a good amount of money, rather than sitting on an expensive mortgage in the hopes that you will be able to save even more money.
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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