Should You Refinance Your House in Today’s Economy?
Have you been considering a refinance of your mortgage? Now may be the time to act on 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.
Mortgage interest rates are low because the Fed has slashed federal interest rates in an attempt 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 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, the bank offers them a mortgage with a longer term as well as lower interest rates, leading to attractively low monthly payments. However, because the interest has longer to accrue, the lifetime total of the loan may add up to even more money than the previous loan. A loan calculator can help you work out whether an offered loan really offers you savings. If the total comes out to more than the total of your previous loan, either pay more than the minimum each month to informally shorten the term of the loan, or do not refinance.
* Avoid variable rate mortgages when you refinance. 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 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 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 economic crisis has its benefits. With careful consideration of your options, you can take advantage of the current environment, and refinance your house at an excellent interest rate.