Managing your mortgage the right way

One bright spot in this still dismal housing market is the historically low interest rates available to borrowers on mortgages. The average 30 year rate is now 4.69% down from 5.42% a year ago. Here are some additional factors to consider when the lure of a lower interest rate starts tempting you to call your lender:

1. How long do you plan on living there? If the rate is at least 2% lower than your present rate and you plan on remaining there for 5 years than the cost to refinance will most likely be outweighed by the savings in interest you will see.

2. How many years do you have left on your mortgage? If you only have 10 years left on a 30 year mortgage, then even though your payment will go down due to an approximate 2% decrease in your interest rate, the start of another new mortgage will mean that mostly interest will be paid on each monthly payment for the first several years of the loan again. Thus, it would not be wise to refinance.

3. If you have an adjustable mortgage, you may be complacent due to the fact that your payment keeps going down based on the current rate environment. When this changes and rates rise, which they undoubtedly will as the economy comes out of this recession, you will then be faced with increased payments. More the reason to take a good look at this historic opportunity.

Careful analysis must be made when considering refinancing your mortgage. As long as the benefits outweigh the cost, it may be time to take a closer look at this.

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