Home Mortgage Refinancing Guide

Mortgage interest rates in the United States have resumed their upward climb and have risen to their highest levels since last year. According to a survey conducted by one national mortgage lender, interest rates for a traditional, fixed 30 year fixed rate mortgages are up to 6.23% this week. Last week this mortgage interest rate was 6.12%.

Mortgage interest rates are going because of inflationary concerns; inflationary pressure in the marketplace causes long term mortgage interest rates to rise. Prior to this week, long term mortgage interest rates had been declining.

Interest rates for 15 year fixed rate mortgages average 5.81% this week; last week this mortgage interest rate was 5.7%. This shorter term mortgage is a popular choice for homeowners looking to refinance their riskier adjustable rate mortgage loans.

As for one year adjustable rate mortgages, (ARM) they are up to 5.33% this week. Last week a one year ARM averaged 5.2%. Five year hybrid ARM loans are up to 5.87% from 5.75% the previous week.

This increase comes on the heels of the Federal Reserve raising short term interest rates on Tuesday; the government has raised short term interest rates to the highest levels in five years. This is the latest increase in the Federal Reserve’s ever failing strategy to battle inflation by cooling the economy.

At this time last year, the 30 year mortgage interest rate was at 5.63%. Fifteen year mortgage rates were at 5.15%, and one year ARMs averaged 4.23%. Five year hybrid ARMs were 5.0% at this time last year.

Analysts predict mortgage interest rates will continue to rise throughout the year and could hit 6.4 percent this fall. Others are predicting 7% by the Christmas holiday.

Historically low mortgage interest rates have led to a boom in the refinancing business. Many homeowners are borrowing against their equity or taking out risky “option” and “interest only” mortgage loans. If you are uncomfortable with the prospect of debt, should you try and pay your mortgage off? The answer to this question depends on your financial situation, your comfort level with risk, and how long you have until you retire.

One way of looking at your mortgage is that you could be investing that money and earning a return instead of paying your mortgage lender. Investing in tax-deferred securities is an excellent way of growing your money and shielding yourself from taxes.

If you are a young homeowner, you have plenty of time to earn some cash and invest. There is really no rush for a younger person to pay off their mortgage and they benefit from the mortgage interest tax deduction.

If you are a retiree you might benefit from the increased cash flow you would have by paying off the mortgage.

Whatever possible advantages you may see from paying off your mortgage need to be weighed against the advantages you have by keeping your mortgage. The biggest advantage is the tax deduction. It your tax bracket changes because you are retiring and you can afford to lose that deduction than it may be in your favor to pay off the mortgage and pocket the cash.

Keep in mind that if you are nearing the end of your loan, you are paying less each year in interest and receiving less of a tax deduction. Mortgages are front loaded with interest, meaning you pay most of the interest in the early years of the loan.