A Guide To Mortgage Refinance

Reviewed: November 06, 2014
By FinanceWeb

Lowering the mortgage payment is like getting a raise. Every dollar shaved-off the monthly payment can improve financial flexibility and make budgeting easier. Everyone would like to have lower monthly payments. Some homeowners have a mortgage and a home equity loan. Persons with two home-secured loans might benefit from consolidation and a single regular payment. In the low-interest rate environment, when rates have hit near-record lows, everyone should examine the potential benefit of mortgage refinancing.

Time to Refinance at All-time Lows

In recent weeks, mortgage rates have reached record lows as measured by standards of recent years. Now at 4.13 percent, it had fallen to below four percent on the news of the global economic slowdown. The 30-year fixed rate mortgage ranged from a recent low of 3.9 percent down from the yearly high of 4.66 percent. Some sources still offer 3.9 percent 30-year financing.

Tips for Refinancing

Refinancing is usually a good idea when in a low-interest period and one has a high-interest fixed-rate loan, or an adjustable-rate mortgage loan that is in the range of the current low fixed rate. For these homeowner situations, a low interest fixed rate loan may lower monthly expenses and reduce long-term indebtedness. The low interest 30-year fixed rate mortgage may provide more security that an ARM when the trend lines suggest interest rates will climb. Many experts predict that rates will rise slowly and keep pace with the economic recovery.

Points and Points to Avoid

Refinancing is not always the best path for homeowners. There are costs connected to refinancing that can take away any advantage gained in lower interest rates and lower monthly payments. Closing costs are part of every refinance, and they can add up to a significant amount of the savings. For example, if a refinancing yields a lower interest rate and a $150 lower monthly payment. If closing costs are $3,000 then, it will take 20 months to recover that amount in mortgage payment savings. If one plans to sell or in some way leave the home during that period, then there might not be any benefit from refinancing, rather a net loss. Other costs may include additional insurance. Lenders may ask for risk coverage through private mortgage insurance. When examining costs, consumers can work with the lender to lower costs. In a crowded market for refinancing, lenders may choose not to discuss fees. However, as applications for fall, lenders may be more agreeable to compromise.

Mortgage Calculators and Comparison Shopping

The beginning can be as simple as asking a question, how much can one save by refinancing? A mortgage calculator tool can help begin the process. It can answer critical questions by plugging in the current monthly expenses, the current rate and getting options for comparison with new rates. One can determine the refinancing options that will produce improved monthly cash flow and long term benefits. Comparison shopping can be a key to finding an excellent refinancing offer, and a free mortgage calculator will help determine the quality of competing mortgage company offers.

Homeowners Should Consider the Benefits

The U.S. interest rates are in a period of low borrowing costs. A 30-year mortgage can be as low as 3.9 percent and widely offered in the range of 4.04 to 4.13 percent. Calculating the new rates with a mortgage calculator can provide some basic answers. For a more detailed consideration, homeowners can consult with lenders and agents. When determining the net benefits, it is important to consider the closing costs, insurance, and the impact of a longer repayment period.