June 24, 2010

Mortgage rates and its effects on refinancing

For many mortgage payers, refinancing is not only a big option but the one & only solution. The main advantage of refinancing your property is that it effectively reduces the interest rates as well as monthly payments on mortgage. Even it is same if you have a balloon mortgage to pay off. In case of this short-term loan, your monthly payments on mortgage are figured out on the basis of 30-year loan amortization schedules. But as the name suggests, after a short span like 5-7 years the rest of the loan should be paid as the balloon payment.

Mortgage finance faced a turn down during the recession period. But as the period is going to over gradually, lenders have started offering comparably cheaper home loans.

Mortgage rate variations :
  • It is evident from the latest figures that, mortgage rates have dropped to seven year low !
  • According to the researchers, before 2 years at the time of financial turnroll, the average rate on a 2-year fixed rate mortgage exceeded 7%.
  • At the starting of 2010, it dropped down to 4.93%.
  • But as per the latest news, it has lowered down to 4.52%, which is the lowest rate in the mortgage industry since 2003.
So, refinancing your home now will be a matter of thinking.

Should one refinance?
Homeowners should think many times before refinancing their mortgages. Mortgage rates are at their lowest edges does not mean refinancing will come out to be the best option for all of them. It is said conventionally that a homeowner should refinance their mortgage as per the 2-2-2 rule.
It says people can opt for refinance :
  • If the market interest rate has reduced at least 2% than the existing one,
  • Payments for 2 years is already cleared 
  • The property should be kept for 2 more years.
Sometimes it may be more advantageous to continue the existing mortgage payments than incurring the cost of a new one. It can be figured out by a home refinance calculator if refinancing is worthwhile for the homeowner. Once confident enough he or she can go for refinancing his or her property easily.

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