Does It Make Sense to Refinance Your Mortgage?

[Jan 23, 2009.]

 

Current mortgage rates have dropped in recent weeks, causing a flood of applications for refinancings. The average 30-year fixed mortgage rate was 5.12% this week, up from 4.96% last week, according to Freddie Mac.

But does it makes sense to refinance you loan even with mortgage interest rates being so low? Here are some things a New York Times article says to consider.

—Don't assume that you'll be able to get the low rates you see being advertised. You will need the best credit scores—at least 720—to qualify for the lowest mortgage interest rates.

—If you've lost equity in your home you may need cash at the closing to reach 20% equity in your home, or you'll end up paying for private mortgage insurance (PMI). The cost of PMI has risen about 16% to 40% in some housing markets.

—Decide how long you expect to stay in your home to make sure you'll recoup the costs of closing.

—Do you still have an adjustable rate mortgage that is set to reset? If so, refinancing into a fixed-rate 30-year mortgage could be a smart move.

—You may pay more fees if you do take cash out of your home when you refinance.

—Can you document your income? If not, you may have a tough time getting approved for a refinance.

—Will you have to pay a fee to lock in your mortgage interest rate?

Take time shop around and compare refinancing deals. Current mortgage rates are low, but it's important to get the lowdown on any fees, points, and other closing costs you'll be expected to pay out of your pocket before deciding on a lender. Use a mortgage calculator to run all the numbers so you'll know what to expect when contacting lenders to compare refinance deals. 

 

 

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.