By David Pilley on November 7, 2011
.jpg.aspx) Experts on the same subject may disagree at times, but I believe most financial experts can agree the current economy is not that great. A ballooning national debt, a high unemployment rate, an increase in costs of consumer goods, and growing personal debts are not good signs. However, if you are thinking about getting a mortgage for the first time, don’t just automatically say no. Just because your credit score isn’t so good doesn’t mean you can’t get a mortgage. Also, for those looking to refinance a mortgage, now may be an ideal time to do so.
I’m not a financial expert, but if you have a stable job with a reliable income, you may have an opportunity in refinancing an existing mortgage loan or getting a deal on a new mortgage. Why is that? Interest rates! You may have the chance to save thousands of dollars on interest because of recent events.
Just this past week, Freddie Mac stated the interest rate on 30-year fixed-rate mortgages has dropped to 3.94 percent. The average rate on a 15-year fixed loan (an option for refinancing) is down to 3.26 percent. These are both all-time lows, and the 30-year fixed-rate is below 4 percent for the first time ever, dropping from the previous low of 4.01 percent in late September. According to the National Bureau of Economic Research, mortgage rates are currently lower than they were in the early 1950s!
As good as this sounds, record-low interest rates are yet another sign of a bad economy. Mortgage rates tend to track the yield on the 10-year Treasury note (a debt obligation of the federal government similar to a bond; basically, you purchase one, and the government promises to pay you back, with interest, in 10 years), and because investors are worried about the US economy and a possible crisis in Europe, mortgage rates may tumble even further. Think about this: the average mortgage rate in Jan. 2010 was 5.09 percent. If you refinance now, at 3.94 percent, you may be saving thousands of dollars a year because of an interest rate more than one percent lower than it was nearly two years ago.
When it comes to mortgages and refinancing, low credit scores are almost always turned away. Even some people with credit scores in the 700s may not be approved. There are also closing costs that wipe out some possible savings. (Freddie Mac states the current rate is more like 4.12 percent when the extra fees are added.) However, credit score is not the only factor. You may be able to get a new mortgage or a successful refinance with the current interest rate if you have a stable history with your current job, if you can offer a large down payment, or if you have a co-signer with excellent credit. Other factors include a low debt-to-income ratio and the amount of equity you currently have, and you must not have any judgments or liens placed against your property. Furthermore, economists believe the economy may improve if more people refinance with the lower interest rate (and do not default on the loan). If you are trying to get a mortgage or a refinance, pay close attention to interest rates in the next few weeks, as they may drop even further.
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