Low Interest Rates Encourage Many to Apply for Mortgage Refinancing
There was a large increase in the number of consumers applying for mortgage refinancing in the last month. Rates offered on the average fixed rate mortgage were at the lowest point in decades. Some consumers are taking a chance to see if the interest rates will be lowered more in the coming months, as others are not taking a risk and applying for mortgage refinancing now. Regardless of whether you apply for mortgage refinancing under the current rates or take a gamble, make sure you take a hard look at your finances to determine if you even qualify for a new mortgage. Banks are picky, as well they should be. The loose lending practices of the past decade have added fuel to the fire of the housing bust. Lenders have adopted stricter lending practices since the meltdown in the credit market. To qualify for mortgage refinancing, consumers must have more equity in their homes now. And credit scores of applicants must be excellent to be approved. This all translates to fewer approvals for mortgage refinancing, in spite of the significant rise in number of applicants.
Determining whether or not you should undergo a mortgage refinancing can be complicated. The most important thing to note is if your home is now valued at less than you owe on your mortgage. This is the unfortunate case many homeowners who purchased in areas experiencing declining home values are in. You will not be approved for mortgage refinancing if your current mortgage is higher than the value of your home. In fact, many lenders offering mortgage refinancing now make 20 percent equity requisite. If you have enough equity in your property to apply for mortgage refinancing, then it is time to work the costs and benefits.
First, subtract the estimated monthly mortgage payment with the new interest rate from your current monthly payment. Add up all the fees you will incur by undergoing the mortgage refinancing. You will have to pay for a new appraisal and title, lawyer fees, filing fees and any penalties (if applicable) for paying off your original mortgage early. You will need to know how long you plan to own the house for the final calculation. Take the total cost of the mortgage refinancing and divide by the estimated monthly savings. This is referred to as the "break even point," or how long it will take for you to begin to save on your monthly payments as a result of the mortgage refinancing. If it is more than the duration you plan to own the property, then mortgage refinancing is not advisable. If your break even point is less than the time you expect to own the property, then it is wise to consider mortgage refinancing.
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