It really is rather difficult to know when the time is right to refinance a home mortgage.
It really seems to be a matter of timing as much as anything else.
For instance, if mortgage rates are at the lowest point that they have been in quite a few years it would seem that it would be a good time to refinance and lock in the favorable interest rates.
On the other hand, if you do that and the rates go lower still you'll be kicking yourself for not being more patient.
But now there is yet another question to deal with and it is born of the housing bubble that recently burst and got all over everyone.
Many lenders including giants Fannie Mae and Freddie Mac got burned bad on the housing crisis and as a result credit is so tight that you may find it difficult to even find a lender to refinance with.
First and foremost the borrower must establish how long they are planning to stay in the home.
Lenders charge fees for writing loans and in some cases these fees can actually eat into your savings on interest rates to such an extent that they will pretty much wipe them out altogether.
It will also play an important role in deciding which type of mortgage you are best suited for.
For all intents and purposes there are two types of mortgages; adjustable rate mortgages (ARMs) and fixed-rate mortgages.
As the name implies an adjustable rate mortgage has an interest rate that fluctuates over time depending upon market conditions.
The interest rates are based on the Fed Funds Rate which is set by the Federal Reserve Board of the United States.
A fixed rate mortgage, on the other hand, has an interest rate that is locked in for the life of the loan.
It does not fluctuate no matter what the Fed Funds Rate is.
Traditionally fixed mortgages are issued for a period of either 30 years or 15 years.
The advantage of the 30 year loan being lower payments.
The 15 year mortgage has higher monthly payments but when it is paid off you will have paid far less in interest than you would on a 30 year mortgage.
Recently quite a few homeowners have found themselves in trouble as far as paying for their adjustable rate mortgages go.
An ARM will have very low interest rates at the inception but when it resets or adjusts after a set period of years they can become very expensive.
Many borrowers don't realize this or are ill prepared for it when it happens.
A basic rule of thumb is if you are planning to stay in your home for at least 10 years then it would be wise to refinance home mortgage and lock in lower rates.
The reason we say at least 10 years is because the savings that you receive on the more favorable interest rates will be greater than the attorney and appraisal fees that you have to pay out at the inception of the loan.
If you are going to be in your home for less than 10 years it still may be profitable for you to refinance but now you should look into an adjustable rate mortgage to take advantage of the lower interest rates.
There are mortgage calculators available on the Internet that you can run different scenarios through to see exactly what your payments will be.
By using this tool you will know whether or not is a wise decision to refinance a home mortgage.
It really seems to be a matter of timing as much as anything else.
For instance, if mortgage rates are at the lowest point that they have been in quite a few years it would seem that it would be a good time to refinance and lock in the favorable interest rates.
On the other hand, if you do that and the rates go lower still you'll be kicking yourself for not being more patient.
But now there is yet another question to deal with and it is born of the housing bubble that recently burst and got all over everyone.
Many lenders including giants Fannie Mae and Freddie Mac got burned bad on the housing crisis and as a result credit is so tight that you may find it difficult to even find a lender to refinance with.
First and foremost the borrower must establish how long they are planning to stay in the home.
Lenders charge fees for writing loans and in some cases these fees can actually eat into your savings on interest rates to such an extent that they will pretty much wipe them out altogether.
It will also play an important role in deciding which type of mortgage you are best suited for.
For all intents and purposes there are two types of mortgages; adjustable rate mortgages (ARMs) and fixed-rate mortgages.
As the name implies an adjustable rate mortgage has an interest rate that fluctuates over time depending upon market conditions.
The interest rates are based on the Fed Funds Rate which is set by the Federal Reserve Board of the United States.
A fixed rate mortgage, on the other hand, has an interest rate that is locked in for the life of the loan.
It does not fluctuate no matter what the Fed Funds Rate is.
Traditionally fixed mortgages are issued for a period of either 30 years or 15 years.
The advantage of the 30 year loan being lower payments.
The 15 year mortgage has higher monthly payments but when it is paid off you will have paid far less in interest than you would on a 30 year mortgage.
Recently quite a few homeowners have found themselves in trouble as far as paying for their adjustable rate mortgages go.
An ARM will have very low interest rates at the inception but when it resets or adjusts after a set period of years they can become very expensive.
Many borrowers don't realize this or are ill prepared for it when it happens.
A basic rule of thumb is if you are planning to stay in your home for at least 10 years then it would be wise to refinance home mortgage and lock in lower rates.
The reason we say at least 10 years is because the savings that you receive on the more favorable interest rates will be greater than the attorney and appraisal fees that you have to pay out at the inception of the loan.
If you are going to be in your home for less than 10 years it still may be profitable for you to refinance but now you should look into an adjustable rate mortgage to take advantage of the lower interest rates.
There are mortgage calculators available on the Internet that you can run different scenarios through to see exactly what your payments will be.
By using this tool you will know whether or not is a wise decision to refinance a home mortgage.
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