Mortgage Refinance Guide

Today President Bush gave up on the notion of changing the tax laws to eliminate your mortgage interest tax deduction. At a conference in Florida today a homeowner asked the President to ensure housing would remain affordable in the United States.

The President stated the mortgage interest tax deduction would remain as part of the tax code. President Bush had appointed a panel last year that recommended doing away with the mortgage interest tax deduction as we know it. President Bush has stated the tax laws are currently a mess and the Treasury Department is currently reviewing the changes suggested by the President’s panel.

The White House is holding off on their tax initiatives to concentrate on waging other battles. Some members of Congress feel that changing the tax laws to eliminate the mortgage interest deduction is too controversial. Tax laws are never a popular topic to address during an election year.

For now, homeowners rejoice; the mortgage interest tax deduction is safe.

Mortgage interest rates crept up again this week. Traditional fixed 30 year mortgages averaged 6.28 percent this week according to a survey of one national lender. At this time last year this mortgage interest rate was 5.62 percent.

Fifteen year fixed rate mortgages are also up this week to 5.91 percent. Fifteen year mortgages are popular with homeowner looking to refinance their current loans. Last week this mortgage averaged 5.83%

Five year hybrid adjustable rate mortgages are up to 5.95 percent from 5.89 percent last week. At this time last year the five year hybrid was 5.05 percent. One year adjustable rate mortgages are up to 5.36 percent from 5.34 percent last week. At this time last year the one year adjustable rate mortgage was 4.15 percent.

One year adjustable rate mortgage interest rates are very sensitive to market conditions and are reacting to recent interest rate hikes made by the Federal Reserve.

When you are shopping for a mortgage it is important to know what you are looking at when it comes to interest rates and fees.

The Truth in Lending Act requires lenders to disclose the APR for any given loan they offer. The APR factors in the total cost of borrowing from that lender; this includes the interest rate and all fees charged by the lender. When shopping for a mortgage it is important to compare apples to apples by using this APR.

Using any other factor does not give an overall comparison of the mortgage, like comparing an apple to an orange.

Last week the Federal Reserve raised short term interest rates another quarter of a percentage point in its never-ending and often losing battle against inflation. This is supposed to slow the economy which will in turn, keep inflation at bay.

Some in the market believe the Fed is through mucking around with interest rates; after all, this strategy doesn’t seem to be working. Meanwhile, mortgage interest rates have resumed their upward spiral where they left off last year before the holidays.

The bad news is the Federal Reserve didn?t come out and say this was the end of the rate hikes. They did say some more mucking around may be coming. For homeowners, this means more interest rate hikes and rising monthly payments for those with Adjustable Rate Mortgages (ARMs).

If you are one of the millions of homeowners in the U.S. with an ARM loan, or worse yet, an interest only or option loan, you need to be thinking about refinancing your mortgage now. Fixed interest rate mortgages are the safest place to be for your families finances.

Most ARM loans adjust their interest rates every 12 months. The rate you will pay after the adjustment depends on the underlying interest rate, plus the lenders premium tacked on top. The underlying interest rate is often tied to something like the yield on US T-bills. This is why the recent interest rate hikes have a negative effect on your wallet’s well-being.

Deciding whether it would be in your best interest to refinance your mortgage depends on whether your payments for the new mortgage will save you enough to make up for the expense you pay to refinance. It is very difficult to determine the savings when opting for an adjustable rate mortgage as you never know what your payment will be 12 months down the road.

Play it safe: Refinance with a fixed rate, traditional mortgage before rates go up again.

There are three things you can do to lower your monthly mortgage payment. These things include: lengthening your mortgage term, lowering your interest rate, or refinancing to an interest only or adjustable rate mortgage.

Interest only mortgages loans are not recommended for anyone other than the most financially savvy homeowners. It is very easy to get overextended with the payments on an interest only loan and you could lose your home as a result. Adjustable rate mortgages typically have lower interest rates than traditional fixed rate mortgages; however, current market conditions have created an “inversion” where adjustable interest rates are rising much faster than long term fixed interest rates. As a result, many homeowners with adjustable rate mortgages are refinancing to traditional fixed rate loans.

If lowering your monthly mortgage payment is important to you, changing the mortgage term is a safer way to do this. If you currently have a 15 year mortgage, refinancing to a 30 year mortgage is a quick fix. If you already have a 30 year loan you may be able to negotiate with your lender to extend the remaining term. If this is not an option for you, 40 year mortgages are becoming increasingly popular; however, you would need to refinance with a new lender.

Another option if you do not planning on moving is pre-paying interest to lower your interest rate. This is done by paying points to the lender in exchange for lowering your interest rate. Points are paid at the time of closing and one point is typically 1% of your new mortgage loan amount.

To learn more about lowering your monthly mortgage payment and saving money when refinancing your mortgage loan sign up for our free guide: “Five Things You Need to Know Before Refinancing Your Mortgage Loan“