Interest Rates

It doesn�t seem fair, somehow, that you should continue to pay a high rate on your monthly mortgage payment when interest rates drop. After all, everyone around you who waited to take out their mortgage is reaping the benefits of a lower rate.

Fortunately you are not stuck with a high rate mortgage when interest rates drop. It used to be that people followed a rule of thumb called the 2 percent rule. According to the 2 percent rule you were wise to refinance your home any time interest rates fell at least 2 percent � and you planned to continue living in the house and making payments for at least three years.

But with home prices considerably higher than they were just a few short years ago, the 2 percent refinancing rule has become somewhat dated. Today it is considered prudent to refinance your first mortgage with every 1 percent to 1.5 percent drop in interest rates � assuming you plan to continue living in the home for at least three more years.

When you refinance a loan you take out a new loan and pay off the original loan. The reason to do this, of course, is so that you can replace an old high-interest loan with a high monthly payment with a new loan at a lower interest rate and a lower monthly payment. Because of the various fees involved in refinancing a loan, there is no benefit to you for the first two or three years of your new mortgage since the savings you realize each month merely go to pay off the fees that you paid to get the new loan.

However, starting in either the second or the third year the benefits of refinancing can become very apparent. You can easily determine whether refinancing is right for you, and discover how much you could save by refinancing, by using one of the many free mortgage calculators that are available online.

Mortgage refinancing is not right for everyone. One of the disadvantages to mortgage refinancing is that if you have spent many years paying down a 30 year loan until only a few years remain, most refinance loans require that you take out a new 15 or 30 year loan. To exchange a loan that is almost paid off for a new loan � even one with a lower monthly payment � that will stretch out for 30 more years can be a depressing thought.

One thing many people overlook is that it may be advantageous to refinance even if interest rates are constant if there has been a sufficient improvement in your credit rating. That�s right. If your credit rating has improved recently then it may very well be that you would qualify for a lower rate on your mortgage than you were originally quoted � even if interest rates have not moved much since your original loan was approved.

For most people the decision to refinance or not to refinance is strictly a mathematical decision � and if the numbers are on your side then you�d be foolish not to refinance.

Please take a moment to visit some of our partners' sites...