Is Refinancing a Good Idea?

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Over the past few months, mortgage interest rates have fallen to the lowest level ever. While mortgage rates for all types of mortgages are extremely low, the credit crunch has made getting a mortgage has become far more difficult than it was even a few years ago. Furthermore, getting a mortgage now is quite expensive as it comes with historically high origination fees and mortgage points. Because of this, there are several considerations to take when deciding if mortgage refinancing is a good idea.The first consideration to take when considering mortgage refinancing is your current credit situation. Mortgage lenders have drastically tightened their lending practices to people with bad credit. To get the best possible rates, you will now need a credit score of at least 740. If you score is less than 660, you will have a difficult time getting any mortgage at all. If your credit score is poor, spending the money to apply for the mortgage refinancing could be a waste of money. Instead, you would be better off paying down your account balances and checking your balance again in a couple years.The second consideration to take when considering mortgage refinancing is how much money you have left on your mortgage. Spending the money to lower your interest rate makes the most sense when your mortgage balance is high and your current LTV is 80% or more. If your mortgage balance is far less than 80% LTV, then spending the money to lower your rate may not make financial sense because only a small amount of your mortgage payment will go towards interest anyways.The third consideration to take when considering mortgage refinancing is how long you plan on keeping the mortgage. As mentioned earlier, mortgage refinancing comes with various fees, including origination and mortgage points, which could end up costing up to 2% of the mortgage balance. If you are planning on selling your home over the next few years, then the amount of money you spend when mortgage refinancing may not be worthwhile. Generally speaking, it will take a few years to break even on the costs of the refinance.

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