Refinance Now and Take Advantage of the Mortgage Crisis

04/01/09

If you want to refinance your house, right now may be the time to do it. Ironically, the debt crisis created by bad mortgages has created excellent opportunities for people who can prove they are capable of paying off their mortgages, and who have a higher interest rate on their current mortgages. A refinance can benefit your finances remarkably, especially if you bought your property during a high in interest rates.

Mortgage interest rates are low because the Fed has slashed federal interest rates in an attempt to stimulate the economy. While Federal rates do not directly impact mortgage interest rates, over time, mortgage rates tend to follow the same trends ... upwards or downwards.

Here are a few details to take into consideration when you decide whether to refinance:

* Will the extra fees wipe out the money you would save with a lower interest rate? There are a number of extra fees associates with a refinance. If your interest rate is already fairly low, you may find that the money you save on interest payments is eaten up by closing charges.

* Similarly, will a longer loan term add enough extra interest payments to completely offset the savings you might have gotten through a lower interest refinance? Often, when people refinance because they want lower monthly payments, the bank offers them a mortgage loan with a lower interest rate as well as a longer term. The result is a temptingly low monthly payment. However, the extended term also allows more interest to accrue. Use a loan calculator to determine whether you are really saving money, and if you are not, either decide to pay more than the minimum each month, or do not refinance.

* Avoid variable rate mortgages when you refinance. Variable rate mortgages generally offer lower monthly payments than fixed rate mortgages, but you are likely to lose the benefits of the low interest rate when the economy booms and Federal interest rates rise again.

* Do not wait for rates to drop lower before you refinance! Interest rates are already at a record low. Anyone who waits too long to refinance is likely to be caught refinancing as rates rise again. If rates do start rising, do not wait even longer in the hope that they will drop again. Grab a relatively low rate while you can. Refinance and lock in a lower rate as soon as possible, getting an interest rate that saves you a good amount of money, rather than sitting on an expensive mortgage in the hopes that you will be able to save even more money.

Even a weak economy has its bright side. If you weigh your options carefully, you can take advantage of the current economic situation, and refinance your house at considerable savings to you.