Interest Rates and Refinancing
With interest rates dropping, many people are rushing to get new mortgages. But mortgage lenders warn there are still a lot of desperate lenders out there, so buyer beware. Don’t just call asking for rates. Ask questions, and find out what is the best deal.
Make sure you get a referral on a mortgage lender or broker, and get everything in writing. Before mortgage lenders give you rates, they should be asking you about your current loan, your current interest rate, how long you plan to stay in the home and how good your credit is to ensure you are getting the best deal. The lowest rates are not always available to everyone. For example, if your credit score is lower than 720 you’re probably out of luck.
So, should you refinance for no cost? If you have, for example, a $300,000 mortgage at 6 percent, payments would be $1,798 a month. If you refinanced at 5.5 percent and pay your closing costs, your payment would go to $1,703. That’s a savings of $95 a month. Closing costs for that loan will run you $800. So if you spent $2,800 to save $95 a month, you’ll make up the cost of that refinance in 29 months. If you think 5.5 is the bottom for the rate cuts, and will stay in your house more than 29 months, then it’s worth doing.
Another example: With no closing costs, you’d pay a higher rate. So if your rate was 5.75 percent and no points and no closing costs, you would save $45 a month and it wouldn’t cost you anything. The decision depends on your long term goals, your future, your job, and where you think rates are going.
Whether or not the lower rates will stick around is yet to be determined. Some believe lower rates are around for awhile due to the fact that the rates were federal action based rather than due to the bad market.
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