Near the end of 2008, the government bought a large portion of mortgage backed securities totaling $500 billion. Consequently, mortgage loans have been offered at lower and lower rates. Rates for mortgage loans are at the lowest point since Freddie Mac began following the trends in rates 28 years ago. Lower rates seem to be the one silver lining for consumers caught in the economic downturn, particularly for those who could not afford to purchase a home during the run up in the housing market. The lower rates have encouraged some of those people to jump into the real estate market and take on new mortgage loans. And many current homeowners are refinancing original mortgage loans under the new interest rates. Although the interest rates are enticing, lending institutions now have much tighter lending standards. They now require higher credit scores and more equity, which means that many who may have qualified for refinance in past years may not qualify now. Those particularly affected are homeowners whose home values have decreased significantly since they purchased their properties. The drop in values have left them holding less equity in their homes. Calculating the costs and benefits of refinancing mortgage loans, as well as examining credit files, credit scores and current equity should be part of any decision to refinance.
If you wish to refinance, shop around online to determine the interest rates and types of mortgage loans for which you might be eligible. Then do some simple calculations to help you decide if refinancing makes sense for your current and future financial situation. Most people refinance mortgage loans in order to save on their monthly payments. To determine how much you would save, subtract the anticipated new monthly payment from the loan payment you make now. Then add up all the costs of the refinancing. For example, you will need to pay for an appraisal, fees for the title and lawyer fees. Next, determine when you will make up the cost of the refinancing and start saving on your monthly payments (also know as when you "break even.") You do this by dividing your total estimated cost for the refinancing by your estimated monthly savings. The number will be given in months. If you expect to sell the house before you break even, refinancing might not be the best financial move. If you plan to own the house past that break even point, then consider refinancing. If your savings outweighs the costs over the time you expect to own the house, then refinancing now via the low rate mortgage loans could be a smart move.