Friday, October 31, 2008

How to know when to refinance!

In spite of the bad press right now may be a great time to refinance with rates at historic lows. CNN reported in September 2008, the rate on a 30 yr fixed mortgage dipped to 5.93%.

The decision to refinance is subject to one basic premise: decide if refinancing presents enough financial advantage to make the deal worthwhile. Easy online mortgage calculators can help the consumer to compare the cost of maintaining their current mortgage, against obtaining a new one. You should have specific numbers regarding costs and fees, from a lender you trust. By having solid estimates from a lender, together you can prepare budget projections and compare those projections to the current situation to determine how much you can reduce monthly expenses.

Also calculate how long it will take to recover the initial fees and costs of refinancing. Things such as prepaid mortgage insurance, prepaid discount points, title searches, appraisals, inspections, and other mortgage processing fees, can and will add significantly to the cost of the refinancing process. If possible, these one time fees should be paid for "up front" by the consumer, rather than being included in the amount to be financed. Once the consumer has the estimated total for these one time fees, they should compare this figure to their total estimated monthly mortgage savings, and determine how long it will take for the savings to pay back those extra costs. It is often said that, if the mortgage savings won't pay for the costs of refinancing within seven years, then that money is being poorly spent and refinancing should be avoided at that time.Consumers might be well advised, at this time, to avoid refinancing a home mortgage in order to "cash out" equity. Because home values are radically deflated over much of the country right now, equity valuations are also at historic lows. Unless the equity funds are to be used immediately to retire debt at high interest rates, or to improve the subject property in ways which will significantly increase its value, you may wish to wait until a home's value rebounds before they tap into its equity value. As mentioned before, do the math to determine if the cost of cashing out equity is justified by the potential savings from refinancing.A lot of people may be putting too much emphasis on non essential factors. The election, the bailouts of large financial institutions, inflation, and unemployment rates actually have little bearing on the decision. Those larger economic dynamics take their own course regardless of how responsible consumers handle home mortgages. Homeowners must decide for themselves, based on their budget whether or not refinancing shall pay them the dividends which justify the effort to restructure their home mortgages.