Is now the time to refinance a residential mortgage?

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Right now may be a great time to refinance a home mortgage. Residential mortgage rates are currently at historical lows. CNN Money and Finance, reported on September 11, 2008, that the interest rate on a 30 year fixed rate mortgage had dipped to 5.93%. Economists and financial analysts are indicating that rates could drop even lower yet.

In it's simplest form, the decision to refinance a home mortgage is subject to one basic premise: the consumer needs to decide if refinancing presents adequate enough financial advantage to make the proposition worthwhile. Easy and accurate mortgage calculators can help the consumer to compare the cost of maintaining their current mortgage, against the costs of obtaining and maintaining a new one. To do this, the consumer should have specific numbers regarding costs and fees, from banks they may wish to do business with. By having solid estimated numbers from potential lenders, the consumer may prepare mortgage budget projections and compare those projections to their current mortgage budget to determine how much they might reduce their monthly mortgage expenses by refinancing.
The consumer should also calculate how long it will take to recover the initial fees and costs of refinancing. Things such as prepaid mortgage insurance, prepaid discount points, title searches, appraisals, inspections, and other mortgage processing fees, can and will add significantly to the cost of the refinancing process. If possible, these one time fees should be paid for "up front" by the consumer, rather than being included in the amount to be financed. Once the consumer has the estimated total for these one time fees, they should compare this figure to their total estimated monthly mortgage savings, and determine how long it will take for the savings to pay back those extra costs. It is often said that, if the mortgage savings won't pay for the costs of refinancing within seven years, then that money is being poorly spent and refinancing should be avoided at that time.

Consumers might be well advised, at this time, to avoid refinancing a home mortgage in order to "cash out" equity. Because home values are radically deflated over much of the country right now, equity valuations are also at historic lows. Unless the equity funds are to be used immediately to retire debt at high interest rates, or to improve the subject property in ways which will significantly increase it's value, the consumer may wish to wait until a home's value rebounds before they tap into it's equity value. As mentioned before, the consumer should also do the math to determine if the cost of cashing out equity is justified by the potential savings from refinancing.

A lot of people may be putting too much emphasis on non essential factors in determining if they would like to refinance a home mortgage at this time. The presidential election, the bailouts of large financial institutions, inflation, and unemployment rates should actually have very little bearing on the decision. Those larger economic dynamics shall each take their own course regardless of how responsible consumers handle their own home mortgages. Home owners must decide for themselves, based on careful and accurate budget projections, whether or not refinancing and it's associated costs shall pay them the dividends which justify the effort to restructure their home mortgages.
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