When To Refinance

Mortgage and Mortgage Refinance

How Interest Rate Changes Affect Mortgage Rates Mortgage rates depend on the interest rate the government charges to lend money to banks--the federal lending rate. Variable mortgage rates are often a fixed percentage above this "prime rate." Long term and short term treasury bond rates also indicate the trend in long term (30 year fixed rate) and short term (e.g., 7 year fixed with balloon payment) mortgage rates. If the 30 year treasury index is higher than the 5 year treasury index, the overall trend in interest rates are upward. If the 30 year treasury index is lower than the 5 year treasury index, the overall trend in interest rates is downward. What if interest rates are headed upward? For a $100,000 loan, for every quarter point increase in a mortgage rate you will pay about $20.83 per month more in interest charges. For a $100,000 mortgage, you will pay about $416.67 per month in interest if the mortgage rate is 5%. If the interest rate increases to 5.25%, you will pay about $437.50 per month in interest charges. That's an increase of $20.83. So, if interest rate are increasing, there is increasing pressure to get a consolidation loan soon. What if interest rates are headed downward? On a $100,000 mortgage loan, every time the mortgage rate drops by a quarter point, you will save about $20.83 per month in interest charges. Let's say you have $30,000 in credit card debt at 18%. This is costing you about $450 per month in interest charges. Consolidating this $30,000 debt into a 5% mortgage would cost you $125 per month in interest. You would save ($450 - $125=) $325 per month in interest charges. It would cost you $325 per month to wait for a better mortgage rate deal. This simply is not worth it. After you get a consolidation loan, if mortgage rates continue to decline, you can always refinance you mortgage at a lower rate and get the benefit of lower interest payments. It would still be smart to consolidate as soon as possible.

Refinance Your Home Mortgage

Take advantage of low mortgage rates.

Now you can lower your monthly payments, consolidate high-interest debt, and have cash to make home improvements.

When refinancing, you can choose to borrow enough to only pay off the mortgage balance you owe or, if you have enough home equity built up, you may also be able to borrow an additional amount in what is called "cash-out" refinancing.

This extra amount can come in handy if you are looking to pay off other debts such as auto loans or credit cards. However, you should evaluate a cash-out refinancing carefully.

Generally, when refinancing your home you look for a new loan with more favorable terms. You refinance if you want to pay off a higher interest rate loan with a lower interest rate loan. The new lender pays off the current lender and becomes the lien holder on your home.

If you have other debts and want to combine loan payments, you may decide to use a consolidation loan to refinance your mortgage. Advantages of a loan consolidation include:

We custom tailor our loans for each individual – no cookie-cutter loans.

We work with you to find a loan that fits your specific needs.

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