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When Home Refinance Is A Good Idea?

With the current instability of the economy in the United States and the housing market falling drastically, you may wonder if it is a good financial move for you to refinance now.  You should consider a few things about mortgage refinancing, and you will be able to decide if a mortgage refinance is right for you. 

Mortgage interest rates are at historic lows.  Because of this, mortgage refinancing can likely lower your current monthly payment quite a bit.  Lowering the payment is the prime reason most people think about refinancing.   Many people are taking advantage of these historically low rates to lower their monthly payments.  A good rule of thumb is that if the new interest rate when you refinance is at least 1/2 percent lower than the one you currently have, it may be worth it to go ahead with it.  If it isn’t at least this ½ percent lower, you will likely not recover the closing costs you pay to refinance and it isn’t worth it to you.    

In most areas of the country, home prices and values have plummeted.  Although interest rates are at historic lows, this is not the only factor to consider when deciding if a refinance is a god move for you.  The only way to determine what your home is really worth right now is to get an appraisal.  In fact, that will be one of the requirements for a mortgage refinance.  Once your home is appraised you will be able to tell if you have enough equity in the home to make it worth the refinancing.  Generally, if you want to refinance more than 80% of the current value of your home, you may have to pay a monthly PMI or private mortgage insurance fee on top of your monthly payment.  Most lenders won’t allow you to refinance more than 90% of the value of the home.  If your home value has dropped, you may not have enough equity to make it worth refinancing. 

If your credit scores are bad, the only type of mortgage refinance you may be eligible for is a bad credit mortgage.  The interest rate on this will be higher than for a regular refinance, but depending on your original interest rate and the length of the new term, it may still lower your payments.  With the lowest interest rates in decades, now may actually be a great time for you to obtain a bad credit loan or a regular refinance.    There is a lot of paperwork involved to refinance, but with the low interest rates and the amount of money you may be able to save each month, it may well be worth the time and effort to call a loan agent or banker and start the process for yourself.