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Time to Refinance ?

December 20th, 2007 at 03:02 pm



With the turmoil in the mortgage industry, many people think that this is the worst possible time to consider refinancing their home. However, if you have good credit and if you have an adjustable rate mortgage (ARM) that is scheduled to adjust in the next 2 - 3 years, now might be a perfect time to consider refinancing your home.

The November CPI was recently shown at .8% over October and 4.6% higher than November 2006. The Fed is admitting that they must get serious about curbing the increasing inflationary pressures. If inflation continues to increase over the next one to two years, interest rates and mortgage rates will rise to reflect this increased inflationary risk.

Currently, if you have good credit, a 30 year fixed rate mortgage can be found with an interest rate of 6% or less. A fifteen year mortgage can be found with interest rates as low as 5.625%. If you have a $200K mortgage, the 30 year loan payments will be $1200 and the 15 year payments would be $1650.

With an ARM that will reset in 2009, if increasing inflation persists, fixed mortgage rates could easily hit 7.5%. By waiting to refinance in 2009, you could end up paying $1,400 per month for he same $200k mortgage that you could get for $1200 per month now.

If your finances allow, consider a 15 year mortgage. Not only will you pay less than 1/2 of the total interest paid on a 30 year mortgage, in 15 years you will completely own your home. When you no longer are paying $15,000 -$20,000 per year in mortgage payments, you will be surprised at the flexibility you have in your career and retirement choices.

All indicators are pointing toward significantly increased inflationary pressures in the coming years. When inflation increases, interest rates, including mortgages, increase. If you have an ARM, you are at risk of paying much higher mortgage payments in the future. It may be in your best interests to refinance your ARM with a long term, fixed rate mortgage now.

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