Mortgage Rate Refinancing

The decision to refinance one's home is a colossal one; the reason being, refinancing does not automatically denote savings-sometimes people mistakenly refinance to mortgage loans with lower interest rates, but worse terms, which ends up costing them money down the road. Analyzing market trends and loan specifics immeasurably helps uncover the mortgage rate refinancing option that ends in savings.

Housing values, as a general trend, are up during the past decade. The national median housing value has increased from $101,100 to $119,600 from 1990 to 2000 (a positive change of 18.3%). National average interest rates for home mortgage loans, conversely, have been declining from highs of 9 or 10% during the economic boom of the 1990's down to 2003's lowly 5.5% for 30-year fixed loans. All this spells savings for Americans, who parlay mortgage rate refinancing into lower monthly payments, as well as unlocking money in the form of housing appreciation.

When does mortgage rate refinancing make sound economic sense? The general rule of thumb concerning overall savings on refinancing loans exhorts that homeowners should only consider it a viable option when current interest rates are 1 to 2% lower than existing interest rates. Closing costs, escrow and title fees, as well as appraisal charges account for the 2 percent rule. However, online lenders have stalwartly fought to eliminate hefty portions routinely associated with closing costs. The result? Mortgage rate refinancing is currently viable, in some cases, when present interest rates are 1% or less than existing rates.

Fortunately for homeowners, the general economic slump has produced favorable rates (periods of economic unrest routinely spell low interest rates) over the past few years. In January 2004, national median interest rates bottomed out at 5.493% for a 30-year fixed interest home mortgage loan. By July, rates (due to a Federal Reserve hike mid-month) rose to a national average of 6.11% for the same 30-year loan. In February, Federal Reserve Chairman Allan Greenspan urged homeowners to strongly consider a mortgage rate refinancing into an ARM (adjusted rate mortgage). Economic pundits found this curious news, since fixed rates were so low. ARMs ordinarily make sound refinancing sense during high interest periods, when consumers believe rates will go down in the next few years (in order to refinance again, this time to a fixed interest rate). ARMs entice prospective borrowers with low initial interest rates (the national median for a 1-year ARM in June 2004 was 3.310%) and, after a stipulated amount of time, lenders raise rates contingent upon market factors.

Since the Federal Reserve has overtly hinted at subsequent and periodic interest rate spikes over the next few years, ARMs don't currently make financial sense for homeowners. Mortgage rate refinancing to a 30 or 15-year fixed interest rate is presently the most economically viable option. But, homeowners should definitely hurry before interest rates take a turn for the worse. Americans have the unique opportunity, through refinancing, to trim down monthly mortgage payments, while concurrently unlocking equity stored up through decade-long house appreciation trends.

Homeowners should proceed with caution, but nonetheless proceed, towards mortgage rate refinancing. Online options prove affordable with regards to almost negligible closing costs and title fees; however, be sure to ascertain the reputability on any given lender (especially e-commerce brokers). Refinancing one's home is all about timing, but make sure you're refinancing to better rates and better terms. Just because interest rates are low, doesn't make mortgage rate refinancing necessary. Homeowners need to fully examine their situation before contacting lenders, otherwise you're loan may end up buying the farm.