Does It Make Sense to Refinance Now?Francine L. Huff
Mortgage rates are on the rise again and fewer people are applying to refinance. Mortgage applications declined a seasonally adjusted 7.2% the first week in June 2009 compared with a week earlier, according to a Mortgage Bankers Association survey. Refinancing applications fell 11.8%. The 30-year fixed-rate mortgage averaged 5.57% and 15-year mortgages averaged 5.1%.
But do rising rates mean you shouldn't refinance your loan? That depends upon several factors. Use the following guide to decide if a refinance is prudent when getting mortgage quotes.
- Do you have an adjustable rate mortgage? Refinancing into a fixed-rate mortgage could give you more stability when you always know what your monthly payments are. Depending upon your situation, refinancing into a fixed-rate loan could increase in your monthly payments, but you'll at least know that your payments won't change if mortgage rates jump.
- Are you paying mortgage insurance (MI)? If you've managed to hold on to at least 20% equity in your home, you should be able to do away with your MI payments. How much you save depends upon the amount of your mortgage loan. For example, if you bought a $150,000 home with a 5% down payment of $7,500, you're probably paying about $90 a month for private MI, according to the Mortgage Guarantee Insurance Corporation. A mortgage refinance would put that $90 back in your pocket, in addition to any other savings you reap through the new loan.
- Do you plan to stay in your home long enough to recoup the cost of refinancing? Let's say that you'll save $200 a month by refinancing your mortgage loan, and the total cost of refinancing is $3,000. It will take you 15 months to break even ($3,000 / $200 = 15).
Run the numbers very carefully when considering a refinance. Get several mortgage quotes to find the best deal.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.