Refinance Now Because Mortgage Rates Are Going Higher In 2012
mortgage rates have fallen to record low rates thanks to a financial crises, a recession and the Federal Reserve's programs of driving down mortgage rates to revive the housing market. Today's mortgage rates on 30 year home loans are at 3.97%, just above an all time record low of 3.94% on RatesORama's database of average mortgage rates.
If you're looking into buying a home but have been on the sidelines because housing prices continue to fall you might want to take the plunge and buy now. Home prices probably don't have much more to fall and neither do mortgage interest rates.
Mortgage Rates are Low Right Now
If you're thinking about refinancing but have delayed that decession because you believe refinance rates will decline further you're probably right but with refinance rates today on 30 year home loans under 4.00% rates probably won't decline much further.
Besides the refinance rate available right now there are other factors you need to considering when you refinance. If you're like most homeowners your home is probably the most valuable financial asset you own, therefore you want use a mortgage lender that you can trust and who is offering you the best mortgage rate available with the best terms.
Refinance Rates Are Also Low
You're probably refinancing to save money by either lowering the mortgage rate on your loan or taking a shorter term mortgage, say a 15 year instead of a 30 year mortgage. With the benefits of refinancing there also are costs involved.
Basically when a homeowner refinances their loan they are paying off their existing mortgage with a new mortgage. Some homeowners also take this time to consolidate more than one mortgage loan, for example a primary mortgage and a home equity loan or line of credit.
Tip: The general rule for a refinancing to make financial sense is current refinance rates should be at least 1.00% less than the interest rate on your home loan.
Other homeowners might be refinancing to payoff credit card debt which will undoubtedly will be owed at a higher interest rate than any mortgage rates today.
I recently went through the refinancing process, I got a 15 year mortgage with a mortgage rate of 3.00%, my old mortgage loan was a 30 year loan with a mortgage rate of 6.50%. To my surprise my monthly mortgage payments were only a couple hundred of dollars more. The best thing about a 15 year loan is I'll own my home in half the time.
The mortgage interest rate on your home loan is tied directly to how much your monthly mortgage payments will be. A lower mortgage rate will be lower monthly mortgage payments unless you're refinancing from a 30 year loan to a 15 year loan like I did.
If you bought your home in the past 10 years chances are the current mortgage rate on your home loan is higher than mortgage rates currently available. Outside of prevailing interest rates you might also be able to get a lower mortgage rate now because you have owe less than 80% of your homes value or your credit score is better now than when you got your oringal mortgage.
Refinancing your home loan is not the only way to decrease the term of your mortgage. When you get your loan some lenders also offer a program where you pay your mortgage bi-weekly. Some charge you for this but you can have the same affect on paying your loan off quicker by making one extra mortgage payment a year.
With a bi-weekly payment you're making 26 payments half payments or 13 full payments. See the difference? You can also take one payment, divide it by 12 and pay that amount extra each month. For example, say your monthly mortgage payment is $1,200. Take $1,200 divide by 12 which equals $100, and pay the extra $100 a month.
Use a Mortgage Calculator
You can use a mortgage calculator with a prepayment schedule to see the benefits of paying down your mortgage faster. The good mortgage calculators available have a prepayment section that will show you how much mortgage interest you will say by paying down your home loan faster.
If you're planning on taking cash out when refinancing to renovate your home or any other reason you are basically drawing down on the equity in your home. Home equity is the dollar-value difference between the balance you owe on your home loan and the value of your home.
When you do a mortgage refinance for a dollar amount greater than what you owe on your home, you can receive the difference in a cash. When you refinance with cash out you're taking money out of your home which means you owe the bank more and you owe less of your home. Not to mention that you will have a mortgage for a longer time.
For some homeowners refinancing but not be a good move. If you only plan to stay in your home for a couple of years you might not recoup the costs of refinancing in mortgage interest savings. Other homeowners might only have a few years left on their mortgage and when you refinance you start the amortization process all over again where you pay more in mortgage interest than principal at the beginning of a loan.
In the later years of a mortgage loan, more of the monthly mortgage payment applies to principal and helps build equity and less is applied to mortgage interest. By refinancing late in your mortgage, you will restart the amortization process, and most of your monthly payment will be credited to paying interest again and not to building equity.
Your original home loan might have a prepayment penalty which is a fee that mortgage lenders might charge if you pay off your mortgage loan early even if you're refinancing. If your mortgage loan has a prepayment penalty and you're refinancing with the same lender as if the prepayment penalty can be waived.
You might want to refinance your home loan but can't because you're not eligible. Many people want to take advantage of low mortgage rate today but can't because they don't have enough equity in the home since home prices have fallen the past 5 years.
When you refinance the mortgage lender will determine your eligibility for refinancing which is the same process you went through when you got a mortgage to buy your home. Mortgage lender look at your income, assets, credit score, other debts you have along with the current value of the home, and the amount of money you want to borrow.
When you refinance you can expect to pay anywhere from to pay 3 percent to 6 percent of your outstanding mortgage principal in refinancing fees so with the help of a mortgage calculator figure out if refinancing makes sense your you. When I refinanced my home loan I realized that I would save over $400,000 in mortgage interest over the life of the loan so refinancing was a no brain-er for me.
RatesORama.com Average Mortgage Rates