With the recent economic collapse of the financial and mortgage markets, you may have noticed that mortgage interest rates are falling. Many of you with higher rate mortgage loans may benefit greatly with a refinance of your home mortgage loan if you have equity in your home and a solid work and credit record.
You may be wondering why it is that mortgage interest rates are falling? It has been the policy of the US Federal Reserve to raise or lower interest rates to keep the complex economic system in some semblance of stability. Generally, when interest rates are raised it is because there is too much money in economic system and raising the rates puts the brakes on the supply. Conversely, lowering interest rates tends to add more money into the system.
The lowering and raising of interest rates that is done by the Fed, directly affects the overnight borrowing that banks utilize in order to make sure they have sufficient funds in order to avoid any type of bank run. In the immediate aftermath of rising or lowering interest rates, it is the banks that feel the change the most. After a period of time these interest rate changes will be reflected in the loan instruments that banks offer.
In the current economic environment where the Fed has lowered the overnight lending rate to all time levels, the mortgage interest rates are falling as a result. As previously mentioned, it is a great time to refinance your home mortgage loan. However, because of the lack of faith in the financial market as a whole, you must have good credit, a solid work history, some equity in your home (cannot be upside down on mortgage) and be able to qualify for a new loan.
It is also very important to take all fees into consideration when deciding if you should refinance today. A lower interest rate may seem appealing, but after all the fees; origination fees, application fees, points, closing costs, etc. you may not end up saving much money particularly if you plan to move in the near future. So even though mortgage rates are falling, you need to provide due diligence before you make any type of refinancing move.