Below is a one year chart for a 30 year fixed mortgage in blue (rates on the right side) with an over lay of the Fed Funds in green (rates on the left side). There was a nice dip in mortgage rates after the Fed cut its rates at the end of January. Unfortunately rates have now gone back up and are now higher than they were before the Fed went into action.
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When the rates dropped, we looked at refinancing our 2 loans and combining them into one mortgage. Rates were just low enough compared to our existing rates that it made it worth looking into it.
When looking to refinance mortgages a couple of critical points to pay attention to are:
- Value/Equity of Home - if you have at least 20% equity of have experienced a 20% increase in market value of your home you can avoid PMI (private mortgage insurance.)
- Break Even Period - this is driven by the cost to refinance, rates, remaining term on existing loans and how long you plan on staying in the home after the refinance.
- Points/Closing Costs - you may get a great rate and your monthly payments are a lot less than what you pay now. However if you have to pay points up front or have to expensive closing costs you may not end up saving anything after taking these expenses into account.
- Mortgage Rates - obviously you want a rate lower than your current loan rates.
After running the numbers it did not make sense to refinance the loans. I would like to say that I created an Excel spreadsheet that did all of the analysis, but can't. I did find a site (Mortgage Professor's Website) that had a series of calculators one could use to analyze all types of mortgages and financing scenarios. This is the calculator we used.
Besides the calculators there is a lot of information on mortgages, home buying, mortgage brokers, and the loan process. This site is a great place for first time home buyers to become educated about mortgages.
Useful Links:
http://www.mtgprofessor.com/
http://www.bankrate.com/
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