Should You Refinance Your Mortgage?
Dropping interest rates over the last few months have meant an increase in the mortgage refinancing business.
And rates right now are at historically low levels, low enough for some people to think about locking in a new rate even if they have previously refinanced within the last couple of years.
A refinancing frenzy of sorts has been taking place in recent weeks, when rates became the lowest that they've been since records of such things began being kept in the early 1970s.
While experiencing some fluctuation, rates have remained low, setting new records as recently as a few weeks ago.
So, should you consider refinancing?
There are basically three groups of borrowers who I believe are prime candidates for refinancing.
The first, and most obvious, are those people who in recent years took out fixed-rate mortgages with higher interest rates. If that's you, you may want to refinance to take advantage of rates that are considerably lower.
Another group are the folks with adjustable rate mortgages, who may want to refinance with a fixed-rate mortgage.
With an adjustable rate mortgage, you're playing the market and taking a risk, because when the mortgage adjusts, it will do so to whatever the market is at the time, with the cap that is on that particular mortgage.
It may be time to take out a fixed rate mortgage and “lock-in” the loan at the current historically low rates.
And finally, are the people who are able to drop their private mortgage insurance (PMI) because they have paid at least 80 percent of the loan value. If you fall in this group, you should consider refinancing.
For example, let's say the PMI on your loan of $100,000 is $75 a month. Refinancing now could eliminate this extra cost, assuming you have the required equity in your home.
Recently, rates appeared to have hit bottom, and, some experts believe, may have begun a slow upward trend. However, although rates have moved back up to some degree over their record setting lows, on an historical basis they're still extremely low.
In fact, even though rates have risen some, they still are well below where they were a year ago.
And every situation is different. If you have a higher fixed rate mortgage, an adjustable rate mortgage or a mortgage with a balloon payment, it might just pay to refinance.
On the other hand, even if you could refinance at a much lower rate, it likely would make little sense to do so if you only have a short time left on your mortgage.
The key is to assess how much money you might save by refinancing.
One final thought, this may also be a good time to consider shortening the length of your mortgage. You won't truly "own" your home until you don't owe someone else for it, including the mortgage company.
Somehow, as a society, we have decided that amortizing mortgage loans over 30 years is the norm. However, if you go to shorter amortization periods, say 15-, 20- or even 25-years, you can save mucho pesos on interest.
Many people have it in their head that if they do this their payments might double, but with the lower interest rates available at the moment, the payments could actually go up very little, and sometimes not at all.
There are definitely savings to be had out there, and who doesn't like that. It's just a matter of taking the initiative to call around, evaluate your own personal situation, and see if it makes sense for you.
So, what are you waiting for? Pick up the phone!
