Tuesday, August 31, 2010

Mortgage rates hitting record lows

The 15-year fixed-rate mortgage hit a record low of 3.86 percent last week. And a one-year adjustable-rate mortgage averaged 3.52 percent, more than a percentage point lower than a year ago, according to Freddie Mac.

Today’s mortgage rates are the lowest recorded since Freddie Mac, a government-controlled firm, started monitoring mortgage rate back in 1971. The average 30-year fixed mortgage is around 4.375% today, with an APR of 4.559%, down from Friday’s average of 4.36% and and 5.14 percent from last year.

Are you a current homeowner? If you haven’t refinanced your mortgage in the last year or two, does it make sense to do so now? One of the first things to do before you make any decision is to examine your own credit history, credit score, and your payment history, especially over the last two years. If you’re consistently on time with your current mortgage payments, credit card payments, auto loans, etc., then you’re in excellent shape. But even just one or two late payments can impact your credit grade. Lenders will also look at your overall debt situation.

One other key piece of information for refinancing is the “loan-to-value” ratio. It’s simply the amount you’re borrowing as a percentage of the home’s value. So if you want to refinance $75,000 on a home worth $150,000, your loan-to-value ratio is 50 percent. In general, a lower ratio means a lower mortgage rate.

We haven’t seen rates this low for, well, for forever — not since anyone has been tracking mortgage rates here in the U.S. If you plan to stay in your home for five years or more and haven’t refinanced already, it’s probably to your advantage to refinance now. If you’re not sure, ask a lender to run the numbers for you.

Try to keep your mortgage payoff date roughly the same as your current mortgage with any refinancing option you consider. So if you are 10 years into a 30-year mortgage, try to refinance with a term no longer than 20 years. Doing so will help to lower the overall interest costs on your loan.

You may be able to benefit greatly by refinancing your current mortgage. If you are paying more than 1 point over the current offered rate, you should absolutely consider refinancing your existing mortgages. Through refinancing, many borrowers are able to save thousands of dollars in interest payments over the total life of the mortgage, and many can save hundreds of dollars in monthly mortgage payments.

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