Refinancing is on the rise. With rates for refinancing at a 37 year low Americans are coming out in droves to hammer out a new loan and save big bucks each month. According to Fox Business.com applications for refinance loans are up 25% this month alone.
The prospect of reducing their home loans to a more affordable rate in a financially strapped economy is very appealing. With rates hovering around 5%, consumers can save hundreds of dollars a month by refinancing to a lower interest rate, while others, who are uncertain about the future want to shorten their mortgages with 15 year loans.
These rates are slightly higher then the record lows in January because the government purchased $500 billion of mortgage based securities. This should free up lending capital for banks. But are still very low and allow the banks more breathing room to lend to consumers.
No one has a greater opportunity to better their position than those who got saddled with an ARM (Adjustable Rate Mortgage), these kinds of loans can cause serious damage to a monthly budget when the rates go up. Right now they’re at a 37 year low, where do you think there going to go?Up! That’s where. This can cause their mortgage payments to go up, sometimes, by hundreds of dollars. Such a move can allow many to stay in their homes who would otherwise lose them to bankruptcy when the interest rates rise on their ARM and increase their payments to levels they cannot pay.
Of course you need to have a good credit rating to really take advantage of these ultra-low rates. A credit rating of 700+ is preferable by most lenders to take advantage of the new low rates. While lower credit ratings will render a much higher interest rate.
Before you hurry off to the bank for your new loan make sure you take with you some proof of income. That’s right proof of income. The days of no income verification loans are over. Lenders are now going to require borrowers to verify their income, after all failure to do so is one of the major causes of the tumble the banks took in the fall of 2008.
Lenders want to establish that the borrowers income is stable and sufficient to make the payments when they come do each month.
Another factor to consider is ones debt ratio. Banks are not going to dole out new mortgages that encompass 50% of the borrowers monthly income. As a rule of thumb I would recommend staying under 33% of monthly income, to ensure that other obligations can be met as well.
Consider as well:
- Your closing costs, closing on a refinanced mortgage can be expensive. (Closing costs will amount to a couple thousand dollars in many cases and even more in others).
- Are you sure the savings you will gain from refinancing will pay for it as well.
- How long it will take you to recover the closing costs from your monthly savings.
- How long you intend to say in your home. (If you plan to sell before you recover your expenses tan maybe you should reconsider refinancing.
- You will spend another 30 years paying this new mortgage. Maybe a shorter term loan is in order so you don’t add years on to your payment schedule.
These are all important points to think about. Before any decision is made consider them all carefully. I for one want to pay off my house early enough to be able to save for a few years before I retire. Thats whats important to me.
Is refinancing right for you?
Whats important to you in a Cracked World?
