Refinance Mortgage Applications Up

As the first quarter of 2009 comes to a close, mortgage loan rates remained on the downward path. Freddie Mac started following interest rates in the 1970s and their data has never shown rates this low. The Fed recently announced that it was going to buy over a trillion dollars worth of mortgage backed securities, which resulted in a drop in rates even further. The low rates are welcomed by consumers who have been battered by the struggling economy and slump in home values. Current property owners are finding no shortage of solicitations from mortgage refinance marketers. And they appear to be jumping at the opportunity to grab the new lower rates. According to the Mortgage Bankers Association, during the third week of March 2009, mortgage applications were up 3 percent from the prior week and 80 percent of those were for consumers considering a refinance. Mortgage payments can drop several hundreds of dollars a month for consumers who qualify for the lower rate offers. Most consumers who qualify embrace the opportunity to save money in a recession through a mortgage refinance. Mortgage bills are the biggest monthly item for most households. For those who qualify for the new lower rate offers, the savings over time can be significant.
For those who refinance, mortgage payments can be lower, but the overall costs of such a decision must be compared with the savings. Doing some simple calculations can help you determine if refinancing right now makes sense for you. Step one is to figure out what your actual monthly savings will be with the new rate. To do this, subtract the estimated monthly payment under the new interest rate from your current monthly payment. Your second step is to tally what you will pay to undergo the actual refinance. Mortgage origination fees, documentation costs, lawyer hours and appraisals are some examples of the costs. The next calculation you will need to do it figure out when you will actually start saving (commonly referred to as "breaking even.") Take the total of all the expenses you will incur to refinance and divide by how much you anticipate saving each month. This will tell you in months when you will recoup the costs and actually start saving. Considering a refinance is generally not wise, if you plan to sell the house before you break even. On the other hand, it is usually a good financial move to refinance if you anticipate owning the property beyond your break even point. Refinancing is a very personal decision that has to make sense for your financial situation. Working through the financial pros and cons of a refinance, however, will assist you in making that very personal decision.