U.S. homeowners have been watching mortgage rates fall to historic lows as they ponder just how and when they should react to the situation. The feeling among many is that even those who refinanced their home loans as recently as six months ago could still benefit from refinancing again at the current lower rates. Each time the rates have fallen, more homeowners have rushed to take advantage of the new rates, and now with the average 30-year fixed-rate mortgage falling to just 3.87%, there will be a corresponding wave of new refinance requests.
Refinancing makes sense considering a new Freddie Mac report says that half of all U.S. homeowners refinanced their mortgages during the fourth quarter of 2011 to reduce the principal balance on their mortgages. The numbers represent the highest percentage of new refinancing loans in 26 years. The Freddie Mac report also showed that the median interest rate reduction was 1.4 percentage points, and during the first year of a new refinanced loan the average savings totaled $2,700 for a $200,000 home loan.
As a result, it’s no wonder that many homeowners are trying to lock in a lower rate today as the financial benefits certainly outweigh doing nothing at all. A new refinance will allow you to reduce your mortgage rate as well as reduce the principal balance of your mortgage. This leaves more cash with the homeowner who can then use the money to pay down other debts, pay off the house, or add some cash to savings. When a homeowner uses the extra money to pay down debt, it can improve their credit rating and deliver the added benefit of making future loans even more affordable.
Although any loan refinancing process will typically involve more paperwork, more negotiations and more scrutiny of your credit rating, it is also important to remember that every time you refinance, it also has the effect of resetting your mortgage payment clock to 30 years unless you can qualify for a shorter term loan. Refinancing usually also comes along with various fees and closing costs too. And just because some loans will be written at 3.87%, doesn’t mean they will all be that low. The banks and lenders will want their borrowers to have nearly perfect credit in order to qualify for the lowest interest rates, and the lower your credit score is, the higher your interest rates will be as well. If you do have good credit and are not planning to move to another home within five years, taking advantage of today’s record-low mortgage rates makes perfect sense.
