The question always exists, “what if the rates go lower?” When is the best time to refinance? The last thing you want to do is refinance your mortgage and then have the rates go even lower. Since the housing bubble burst many lenders like Freddie Mac and Fannie Mae got left holding the bag, so to speak. As a result credit has tightened up considerably and new issues in refinancing have arisen. It may be difficult to find a lender something that wouldn’t have been a problem in the past. Lending agencies are really picky now as to whom they will give a new mortgage to.
First and foremost the borrower must establish how long they are planning to stay in the home. Lenders charge fees for writing loans and in some cases these fees can actually eat into your savings on interest rates to such an extent that they will pretty much wipe them out altogether. It will also play an important role in deciding which type of mortgage you are best suited for.
When considering the refinance home mortgage option, you will want to take a look at the different types of interest rate structures offered by lending institutions. The basic interest rate charged by lenders is set by the Federal Reserve Board and it is based on the Fed Funds Rate. This rate is what determined the rate of a fixed-rate mortgage, where the rate set is the rate you will have for the length of the mortgage. The ARM option, or adjustable rate mortgage, carries an interest rate that fluctuates as the Fed’s rate changes. There are outside limits, but nonetheless, it will have an impact on your monthly payment.
Most lending institutions offer a 15 year mortgage and a 30 year mortgage. In all cases, the shorter the length of the loan, the lower your monthly payment will be, but the more interest you will pay over the life of the loan. Whenever possible, it is to the mortgage holder’s advantage to go for a shorter loan rather than a longer loan, if they are able to afford the monthly payments.
When considering an adjustable rate mortgage it is extremely important to be aware of the changes that may and probably will occur in your monthly payment over the life of the loan. Every time the interest rate goes up, so too will your monthly mortgage payment. Many homeowners recently ran into problems when interest rates rose sharply and suddenly. They found them in a situation when it became difficult if not impossible to pay their mortgage because the size of the payment was beyond their budgetary limits.
A basic rule of thumb is if you are planning to stay in your home for at least 10 years then it would be wise to refinance a home mortgage and lock in lower rates. The reason we say at least 10 years is because the savings that you receive on the more favorable interest rates will be greater than the attorney and appraisal fees that you have to pay out at the inception of the loan.
If you are going to be in your home for less than 10 years it still may be profitable for you to refinance but now you should look into an adjustable rate mortgage to take advantage of the lower interest rates. There are mortgage calculators available on the Internet that you can run different scenarios through to see exactly what your payments will be. By using this tool you will know whether or not is a wise decision to refinance a home mortgage.
Read how to stop wasting money and start saving when you refinance home mortgage by visiting www.yourfinanceoptions.com.
