Mortgage Refinancing in a Difficult Housing Climate

As the sub-prime mortgage market continues to implode, now many be a great time to consider mortgage refinancing.  Indeed, a great many houses have gone on the market with little hope of selling in a timely manner.  This is causing interest rates to slowly dive to the point where hundreds of dollars in interest payments may be saved annually in formerly hot markets such as Atlanta and San Francisco.

Generally, the theory behind mortgage refinancing is to take a loan at a higher rate and to take out another loan to pay it off at a lower interest rate.  This can involve a shorter or longer overall term than the original mortgage.  Refinancing is often offered as 20-year or shorter loans, though longer term loans are also used to lower monthly payment.  Like the original mortgage, the longer the term of the new loan, the higher the rate is likely to be.

When very expensive homes are involved, as is often the case in very hot real-estate markets, mortgage refinancing can also involve loan consolidation.  When enough of the principal has been paid off, the consolidated loan can then be taken out for values less than $400,000.  From here, an even lower rate can be achieved, especially if a shorter-term loan is chosen.  Even smaller loans can take advantage of mortgage refinancing, though it is often best to wait until rates have hit what you consider to be nearly bottom before signing on to a fixed-rate loan.

Though the prime (or overnight inter-bank loan) rate is determined at the federal level by the action of the Federal Reserve, each bank has a bit of leeway in determining the rates they offer for mortgage refinancing loans.    It behooves lenders to choose a fixed rate mortgage in such a climate, though when rates are high, many people choose an adjustable rate loan.  

Of course, it is the fault of adjustable rate loans, including double and balloon payments, that so many people have lost their homes at a time when rates are already historically low.  Because of this, many of the homes on the market are rather affordable, also making it a good time to buy if one has the money available for it, though hardly a good time to sell.  Mortgage refinancing should be approached carefully to avoid such looming calamities.    

However, for most home-owners, mortgage refinancing remains a very viable option for keeping payments low when times are tough.

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