Low Interest Rates for Mortgage Loans
Near the end of 2008, the government bought a large portion of mortgage backed securities totaling $500 billion. Consequently, mortgage loans have been offered at lower and lower rates. Freddie Mac starting tracking interest rates almost 30 years ago and the rates today are lower than they have ever been during that period. Lower rates seem to be the one silver lining for consumers caught in the economic downturn, particularly for those who could not afford to purchase a home during the run up in the housing market. The lower rates have encouraged some of those people to jump into the real estate market and take on new mortgage loans. And many current homeowners are refinancing original mortgage loans under the new interest rates. As a result of the credit crisis, however, lenders have adopted much stricter lending requirements than they had just a year ago. Unfortunately, fewer people are eligible for the lowest rates due to higher credit score and down payment requirements. Those particularly affected are homeowners whose home values have decreased significantly since they purchased their properties. The drop in values have left them holding less equity in their homes. Consumers who are considering refinancing their mortgage loans should review their credit reports and credit scores, as well as the amount of equity in their current mortgage loans.
If you wish to refinance, shop around online to determine the interest rates and types of mortgage loans for which you might be eligible. Then do some simple calculations to help you decide if refinancing makes sense for your current and future financial situation. The most common reason for refinancing is to bring down the payments on mortgage loans. To determine how much you would save, subtract the anticipated new monthly payment from the loan payment you make now. Then add up all the costs of the refinancing. For example, you will need to pay for an appraisal, fees for the title and lawyer fees. The next step is to figure out your “break even point,” or when you will actually start saving each month. You do this by dividing your total estimated cost for the refinancing by your estimated monthly savings. This will give you a rough idea of when you will start saving. If your break even point is greater than the time you plan to own the house, it would not be wise to refinance. If you plan to own the house past that break even point, then consider refinancing. If the calculations indicate savings for you, then you too could benefit from one of the new low interest rate mortgage loans.