Interest rates for mortgage loans continued to decrease the last week of March 2009. 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. Consumers are happy to see continued low rates, as they grapple with the economic downturn. Current property owners are finding no shortage of solicitations from mortgage refinance marketers. Many are not waiting to see if the rates drop further. 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. Mortage interest rates this low translate to significant monthly savings for those who are eligible for refinancing. 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. The current low interest rates give eligible homeowners a way to reduce their budgets.
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. Next, add up all the costs of the refinance. Mortgage refinancing always comes with appraisals, attorney fees, title and documentation fees, etc. The next calculation you will need to do it figure out when you will actually start saving (commonly referred to as "breaking even.") Do this by dividing your costs by the estimated monthly savings. 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. If, however, you plan to own your house past the time when you break even, refinancing probably makes sense. Refinancing is a very personal decision that has to make sense for your financial situation. But these simple calculations give you some guidelines to help you know whether it is something you should explore.