Mortgage Refinancing With Current Rates

The Federal Reserve announced this week that they were cutting interest rates offered to banks to almost zero. The government hopes the rate cuts will help spur the faltering economy. In response, interest rates for mortgages have fallen this week to the lowest point since 1971. Just over 5.1 percent was where the average fixed rate 30 year mortgage hovered. The rates have been falling for seven weeks in a row. The drop in rates has encouraged many current homeowners to apply for mortgage refinancing. But banks are not lending as easily as they were a year ago. The recent credit crisis caused them to tighten their lending standards. So although there has been an increase in mortgage refinancing applications, many of those are being denied.

Rates are at record lows, but lenders are now more risk averse. They are examining credit reports more closely and will only approve consumers with high credit scores. To secure mortgage refinancing, a consumer must have a higher credit score than was required for a loan for the same amount just a year ago. There has also been a drop in home values in many places across the country. That means that those homeowners now have less equity in their homes. A required step in mortgage refinancing is a current appraisal of the property. When those appraisals are done, some consumers are told that their properties are worth less than their mortgages now. Obtaining approval for mortgage refinancing will be challenging for those homeowners. There are plenty of homeowners who will meet the new lending standards and qualify for mortgage refinancing. If you are considering refinancing, analyze your budget and financial plan to figure out if now is the time to do it. First, add up all the fees and costs of refinancing. You will need to add up things like an appraisal, title fees, documentation preparation and lawyer fees. Determine if you will have to pay a fee if you pay your current mortgage early and add that in to the refinancing total. Then, subtract the new monthly payment from what your current payment is to know how much you would save each month. Thirdly, calculate how many months it will take to actually start saving (know as your "break even" date), by taking the cost of the refinancing and dividing it by your monthly savings. Last, determine how long you anticipate owning the house. If it is longer than when your break even point would be, then mortgage refinancing would be a good decision.