Does it Make Sense to Refinance Right Now?
Although you may have heard of recent legislation entitled “Making Home Affordable” that requires banks and other lenders to reduce the mortgage interest rate for those suffering financially, you may not be aware that there are requirements for the homeowner. Not everyone qualifies for that great 2% interest rate.
For one thing, your monthly payment must equal 31% or more of your income or more. For another, you must be current on your loan and you can not have fallen 30 days or more behind in the previous year. And finally, you are required to sign a statement of financial hardship. Freddie Mac or Fannie Mae mortgages are also eligible.
However, if these conditions do not apply, then you are the mercy of your lender’s prevailing interest rate. It does not always make sense to refinance. The best way to figure out if a mortgage refinance will be a smart decision for you is to use an online calculator.
There are many websites that offer this nifty little tool. You merely plug in the remaining balance of your mortgage loan, add your current rate of interest as well as the new interest rate, and the length of the loan, and it will come back with a monthly payment figure.
In order for this figure to be accurate, however, you will also have to know if you are going to be required to pay any extra fees or points. Even if you do not have this information yet, though, it will give you a good idea of whether or not the current refinance mortgage interest rate you’ve found will lower your monthly payment enough to be considered worthwhile.
Waiting and Watching for the Best Mortgage Refinance Interest Rate
In order to get the best rate for your home refinance, it is going to take some time. Although interest rates have tended to remain stable for the past few months, that is not guaranteed to continue. The best thing you can do is keep an eye on overnight changes daily and be ready for action when it reaches your preferred level.
Prevailing mortgage interest rates are based on a number of factors. One of them is supply and demand. If demand is high, the rate will go up, and vice versa. A cut in the Federal Reserve’s prime rate will not necessarily mean that mortgage rates will also be cut.
In fact, the reverse could be true. A lower prime rate is used to stimulate the economy by inducing people to borrow at these cheaper rates. Sellers will, in turn, increase the prices of their products. When the resulting inflation cheapens the value of mortgage bonds, then the lender has to make up for it somewhere, usually in the interest rate.