Mortgage Rate News

Right now, home mortgage interest rates are at rather low levels. This is making refinancing a rather popular option right now. Indeed, as mortgage applications surge, it is refinancing that is the most popular reason for applying for a home mortgage loan. But if you are considering refinancing (as I am), consider mortgage term.

You don’t have to get a 30-year fixed mortgage

Most people, when they refinance, do so to a 30-year fixed mortgage. In combination with the lower home mortgage interest rates, the longer payment term can result in lower monthly mortgage payments. However, it is not necessary to get a 30-year fixed mortgage. You can get an even lower mortgage rate on 15-year fixed mortgage. And it doesn’t usually cost much more, reports Trees Full of Money:

The best part is your monthly payment will only increase slightly. At current interest rates, the monthly payment on a 15 year fixed rate mortgage for a $300,000 is roughly $2450. Stretching the mortgage out to 30 years will only reduce your monthly payment to about $2000 a month.

You don’t even have to do a 30-year fixed mortgage or a 15-year fixed mortgage. I am thinking about refinancing to 20-year mortgage. It would shorten my mortgage loan term, help me build home equity a little faster, and save me money in interest payments. I’d like to do a 15-year mortgage, but I think that it might be too much in light of the other personal finance New Year’s resolutions.

At any rate, if you are considering taking advantage of lower home mortgage rates to refinance your home, think about the mortgage term, and whether you can handle slightly higher payments. This can help you save money in the long run, as well as build home equity that might come in handy down the road — whether you are selling or whether you decide to get a line of credit.

One of the debates that often surfaces surrounding the home mortgage loan is whether or not it is worth it to pay your mortgage off early. Since I am of the school that it is better to get out of debt as soon as possible, I tend to be on the side of doing what you can to pay off the mortgage early. Others are not so sure. The Greenest Dollar has a great article examining the debate over whether or not to pay your mortgage off early:

Don’t pay your mortgage off early

There are some compelling arguments for keeping your mortgage:

• You get a tax deduction for your mortgage interest.
• You can make your mortgage payments, and then invest the extra in the stock market. (Although for those looking to make immediate returns, this may not be the best move right now.)
• You have more liquidity when your assets aren’t all tied up in your house.

Pay your mortgage off early

Of course, the flipside is that there are definite advantages to paying your mortgage off as soon as possible. (The Greenest Dollar points out that “mortgage” is French for “death contract.”)

• The feeling of freedom you have when you get rid of a rather large obligation. (Stress is reduced as well.)
• Once you pay off the mortgage, your monthly liquidity returns, since you have that cash that would have gone to the mortgage payment.
• You actually own your home. Remember: As long as you have a mortgage, you do not actually own your home. The mortgage lender does.
• You save a great deal of money in interest payments — more than you can save in tax deductions.

One way you can pay off your mortgage early is to set up payments on a biweekly schedule, rather than a monthly schedule. This way you get one extra payment a year. Another thing you can do is send an extra payment when you have the money, designated as “for principal only”, to reduce the amount you owe. Just make sure that your mortgage doesn’t come with a prepayment penalty.

Mortgage interest rates are much lower now than they were a few months ago. In fact, long term mortgage rates are at lows not seen for four years. Mortgage News Daily reports on the new 30 year fixed mortgage interest rates:

The 30-year fixed-rate mortgage (FRM) averaged 5.47 percent with an average 0.7 point for the latest week compared to 5.53 percent with 0.7 point during the week ended December 4.  This is the lowest interest rate for the 30-year FRM since March 2004 when it averaged 5.40 percent.

This is an interesting development, spurred in part by a huge decline in the initial jobless report for November. When the mumbers showed record unemploymnet, it caused bond yields to fall. And, as bond yields pull back, there is room for long term mortgage interest rates to ease as well.

Will lower mortgage rates help the housing market?

Of course, it remains to be seen whether or not these new, lower mortgage loan rates will help the housing market. While the rates certainly look inviting to new homebuyers (and even those looking to refinance), it may not help prevent foreclosures. And it may not mean more houses bought. While more people may apply for home loans, there is not guarantee that they will get them: Mortgage lenders are still showing reluctance to finance those whose credit may not be perfect, or who may not have a larger down payment.

Another consideration is the fact that lower mortgage interest rates are not very likely to help in terms of foreclosures. Even though the foreclosure rate drew back last month, there are predictions that next year will see a huge increase. Loan modifications and foreclosure moratoriums and other efforts to fight foreclosures are only like to work in the short term, and this is a long term problem.