Mortgage Refinancing in 2009

The New Year brought with it a little financial relief for consumers. As of the second week in January, the average interest rate on a 30 year fixed rate mortgage was at 4.89 percent. The low rates have resulted in an increase in applications for mortgage refinancing. In fact, the number of people applying for mortgage refinancing was at the highest point in half a decade. Those homeowners are hoping to take advantage of the lower rates before they go up again.
Many real estate analysts have called the flurry of mortgage refinancing activity a "mini boom." It would be a larger one, they say, if new lending practices were not so tight and values were not so low. Value decreases have caused decreases in homeowner equity, and in some cases homeowners now own so little equity that they are not eligible for mortgage refinancing. Nearly half of the homes that were bought in the last 5 years in one county in California have dropped below what their owners bought them for. Other homeowners who may have been approved for mortgage refinancing just a year ago may not have a high enough credit score to qualify under the new lending practices. A minimum of 700 is the credit score bar for many banks now.
Since the government announced that it would buy a large number of mortgage backed securities, many expect that mortgage rates will continue to be low for the next quarter. If you are interested in mortgage refinancing, now is a good time to shop around. The general rule is that if the interest rate is 1 percent lower than your current rate, then it would be wise to undergo mortgage refinancing. In addition, you need to examine your own budget and goals to know if mortgage refinancing will be worth it to you for the time you plan to own the house. First, calculate what your monthly savings would be by comparing your current payment to the estimated payment under the new rate. Tally up the actual mortgage refinancing costs, such as an appraisal, lawyer and documentation fees and other closing costs. Take that total and divide by what you think you will save each month. This will give you your break even point, or how many months it will take before you actually start saving on your monthly payments. If your break even point is longer than the time you expect to own the property, then it may not make sense to undergo mortgage refinancing.

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by: marciafreeman
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