Is this a good time to refinance?

For many home owners, receiving a letter from their mortgage lender is common. Especially now, after the Federal Reserve cut the interest rate by another 50 basis points, refinancing is back on the table for most home owners.

Refinancing is a financial tool for home owners to lower their monthly mortgage payment. Many home owners, who originally had an adjustable rate on their mortgage, are desperate to refinance. These loans are made based on a variable interest rate, which means the mortgage lender can change it within 15 days of notice. Home owners that plan to save money by getting the adjustable rate can’t afford the higher monthly payment when their rate increases.

As it is today, for a 30 year fixed mortgage, the interest rate is 5.47%. Many borrowers are considering refinancing because they predict the interest rate will rise in the future. Taking advantage of the low interest rate now looks like a smart thing to do.

Lenders are tightening up their standards for mortgages. If a mortgage consumes more than 28% of the borrower’s gross income, it is less likely that the lender will approve the mortgage. Borrowers that are qualified to refinance should pay attention to the prepayment penalty. Sometimes, this penalty can be more than 6 months of the interest payments. Experts suggest the use of the break-even point as a time interval. With refinancing, you can save $100 per month with a closing cost of $3000. Your break-even point is 30 months. It is 3000 divided by 100. If you are planning to stay for more than 30 months, it might be a good idea to refinance. If you are planning on moving or selling the house, you might be better off without refinancing.

The bottom line is: this is a good time for the qualified home owners to refinance. However, weather you should refinance or not, you really should talk to the broker about your situation.

http://biz.yahoo.com/brn/080128/24433.html?.v=1&.pf=banking-budgeting
http://www.bankrate.com/brm/news/mortgages/20070418_refinance_exotic_mortgage_a1.asp?caret=4bhttp://www.bankrate.com/