Refinance Home Mortgage Guide

Homeowners refinance their mortgages for a variety of reasons; most often the reason is to save money and lower the monthly mortgage payment. There are a variety of other reasons for refinancing; here are several good reasons for refinancing your mortgage, in any economy.

Lower Your Monthly Mortgage Payment

You can refinance your existing mortgage loan with a lower interest rate to reduce your monthly payment amount. You can also reduce your payment by choosing a mortgage with a longer term length. Selecting a longer term length will lower your payment amount; however, you will pay more in finance charges over the life of the mortgage. Choosing a lower interest rate will save you money.

Shorten Your Term Length

Some homeowners refinance their mortgages to lower the term length of their mortgage. The reason for doing this is to build equity and pay off the mortgage at a faster rate. A side benefit of choosing a shorter term length is that you will qualify for a lower interest rate with a shorter term than you will with a longer term. Mortgages with short term lengths come with higher monthly mortgage payments, so it is important to budget accordingly.

Consolidate Your Bills

Many homeowners use equity in their homes to consolidate higher interest debt. You can do this by refinancing your mortgage for more than the balance due on your previous mortgage; the new lender will pay you the difference in cash at closing. You can then use this money to pay off your credit cards, car and student loans.

Switch to a Safer Fixed Interest Rate Mortgage

If you are a homeowner with an Adjustable Rate Mortgage and are concerned about interest rates rising, you may want to switch to a fixed rate mortgage loan. Switching will grant you security and stability knowing your interest rate will not go up at the hands of the Federal Reserve. If interest rates go down you can always refinance to take advantage of the lower rates. The main advantage of a fixed rate mortgage is that you can lock in your fixed interest rate for the entire duration of your mortgage.

Switch to a Different Mortgage Lender

Some mortgage companies are better to deal with than others. You may get better customer service, web access to your account, flexible loan terms or simply prefer to deal with a particular mortgage company. Be careful when choosing a mortgage company for these reasons; mortgage lenders routinely sell mortgage debt and the lender you have today might not be your mortgage lender tomorrow. Before refinancing your mortgage you should carefully evaluate the savings you will receive and how long it will take you to recoup the expenses involved. You can learn more about refinancing your mortgage, including common homeowner mistakes to avoid by registering for our free guidebook to mortgage refinancing: “Five Things You Need to Know Before Refinancing Your Mortgage.”

Mortgage interest rates dropped for the third consecutive time this week. This drop pushed mortgage interest rates for traditional 30 year mortgages to lowest point since early April. According to a survey of national mortgage lenders the 30 year fixed rate mortgage dropped to 6.55% this week, down from 6.6% the previous week.

Last April mortgage interest rates averaged 6.53 percent; these interest rates have been on the rise to a four year high in July of 6.8%. Mortgage analysts stated this drop can be attributed to a slowdown in the economy. This slowdown eases inflationary pressure on interest rates. Last week the Federal Reserve decided not to raise short term interest rates, a temporary pause in the two year campaign it is waging against inflation.

The news from the Federal Reserve coupled with a weak job report contributed to the decline in mortgage interest rates this week. The sale of homes has declined as interest rates have been rising; many homeowners are using this dip in interest rates to refinance adjustable rate mortgages before the Federal Reserve is expected to resume raising interest rates next month.

Interest rates for 15 year mortgages average 6.2% this week; this is down from 6.27% the previous week. One year Adjustable Rate Mortgages (ARM) remain unchanged this week at 5.69%. Five year ARM loans dropped to 6.21%; this interest rate was 6.7% the previous week.

One year ago, a traditional fixed interest rate mortgage averaged 5.89%, a 15 year fixed rate mortgage averaged 5.47%, and the one and five year Adjustable Rate Mortgage averaged 4.5% and 5.4%.

You can learn more about your mortgage options, including common homebuyer mistakes to avoid, by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

Policy makers at the Federal Reserve, including Chairman Ben Bernanke, met yesterday and elected to leave interest rates unchanged at this meeting of the Federal Open Market Committee. This news was met with relief in the bond markets as it appears the Federal Reserve is going to wait for additional economic data before deciding to increase interest rates further.

Bond traders are not certain that increases in interest rates are done for the year. Current interest rate futures place a greater than 50% probability that we will see another increase before year end as part of the statement from yesterday’s meeting indicated “some inflation risks remain.” The Fed’s preferred economic indicator of inflation remains outside their comfort zone and continued pressure from rising oil prices will remain problematic. This leaves the Prime Interest Rate, which banks and lending institutions use as a benchmark for setting many interest rates, at 8.25%.

Many monthly payments are still going to increase!

Many Adjustable Rate Mortgages, which are better known as ARMs, are tied to indexes that are very sensitive to short term interest rate hikes. Those homeowners with ARMs must still be prepared to see them adjust higher this year as many of the indexes, which impact these interest rates, have risen from when these loans were originated.

Home Equity Lines of Credit now carry interest rates that may exceed 10.25%. Credit card interest rates, which are often tied to the Prime Rate, remain at recent historic highs. More importantly, recent payment increases on everything from gasoline to increases in minimum monthly payments on charge cards and other consumer debt continue to drain consumers’ wallets. Interest Rates for Fixed Rate Mortgages are still very attractive!

Fixed interest rates have fallen to their lowest levels since mid-May. This may offer you the best opportunity to grab the lowest remaining fixed rates of the year. If you’re considering purchasing a home or investment property, this is the time to do so. Waiting could lead to higher monthly payments for the same piece of real estate. Now is the best time to refinance your mortgage in a quarter! Consolidate higher interest rate loans and lines of credit into an affordable fixed rate loan, complete with lower monthly mortgage payments. To learn more about your mortgage options register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”

The mortgage interest rate you receive depends on a number of factors. Your credit score has a heavy influence on this interest rate. Before you apply for a mortgage loan, you need to run your credit reports and get your credit score. Your credit score is derived from the contents of your credit reports so it is important that these records are accurate. If you find errors in your credit records you must dispute them.

Once you are confident that your credit records are accurate, it is important to shop around for the best mortgage offer. The Internet is an excellent resource for finding a mortgage. If you do not have the time or patience to compare loan offers yourself, a mortgage broker may be able to help you find competitive loan offers. Before you agree to use a broker’s services, you should ask for references and fully understand the broker’s fee for services. It is also a good idea to comparison shop mortgage brokers and check references; if you’re not careful a shady mortgage broker can take advantage of your situation and cost you thousands of dollars.

The term length you choose will also influence your interest rate. Term length is the amount of time the mortgage lender grants you to repay the loan. Mortgages with longer term lengths are viewed as a greater risk and therefore come with higher interest rates. Loans with shorter term lengths have less risk and have lower interest rates.

When comparing mortgage offers it is important to compare more than just the interest rates or the annual percentage rate. Use the Good Faith Estimate mortgage lenders are required to provide you to compare all aspects of the loan including the closing costs. Many homeowners make the mistake of not considering closing costs and origination points when comparison shopping. Many of these costs, especially the lender’s origination fees, are subject to negotiation and a little haggling will go a long way to improve your bottom line. You can learn more about your mortgage options, including how to avoid common homeowner mistakes, by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”