If you're like the majority of home owners you took out a mortgage loan when you purchased your property. Depending on when you purchased your home and what interest rate you're paying will determine if it makes sense for you to refinance.
Mortgage rates have been historically low for about two years now thanks to the recession and the Federal Reserve's programs that are designed to drive mortgage rates and refinance rates lower to help the housing market recover.
May home-owners have already taken advantage of low rates and refinanced their mortgage. Unfortunately many home-owners owe more on their loan than their house is worth thanks to the worst housing market on record.
These home owners are under water/have negative equity and no bank, credit union or mortgage company will loan them more money than their house is worth. This means they are unable to refinance. I have a neighbor who has a 30 year mortgage with a rate of 7.50 percent, this person has an excellent credit history but since he owes more than his house is worth he can't refinance.
The current average refinance rate for a 30 year fixed rate mortgage is just above 5.00 percent. 30 year rates hit an all time low of 4.10 percent late last year. The average 15 year refinance rate is even lower right now. The current average 15 year refinancing rate is 4.08 percent.
When you refinance your mortgage you hope to obtain a lower refinance rate than the rate your paying on your current mortgage. Low refinancing rates make doing a refi very compelling but there are other factors to consider.
Is your mortgage rate one percent higher that the current refinance rate offered by banks and credit unions? If the answer is yes, then now is the time to refinance as long as you plan to stay in your home for a while.
One percent might not sound like much but when you factor in compound interest over the life of most home loans which is 30 years you can save thousands or tens of thousands of dollars. In fact, if you do a refinance you should stash the extra cash into a savings account or certificate of deposit account.
Why not get paid interest instead of paying interest? Granted savings account rates and 12 month CD rates are around 1.25 percent these days it's still better than paying 5%, 6% or even 7% or more depending on your mortgage rate.
Again, a one percent point will save you thousands and the other very compelling reason to refinance is rates are so low these days. If you decide to do a refinancing, there are some things you need to think about.
How much is your annual income? If you're income has changed, specifically gone lower since you got your loan you might not even qualify for a refinance. That is the worst case scenario, but you might end up paying a higher interest rate.
Your credit score will affect your refinance rate. If your credit score is 725 or more you can expect to get a favorable interest rate. If you have a lower credit scores or a bad credit history you can expect to pay a higher refi rate.
How much equity do you have in your home? If you have less than 20 percent equity you might not even find a bank or credit union that will let you refinance. You might be getter off getting an appraisal on your home and spending a couple hundred of dollars instead of starting a refinance and paying even more.
Many states like Nevada, Florida and California have seen home prices decline by 30 percent to 60 percent which makes a refinance out of reach for a lot of home owners in these states
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