While mortgage interest rates have lowered significantly in the past few months, homeowners are cautioned toward refinancing without careful consideration. According to a recent survey conducted by Freddie Mac, rates on the 30-year loan fell to 4.96% in mid January – the lowest rate on record. So why should homeowners proceed with caution? Here are a few reasons:
- The conforming loan limit has dropped. Since last year, the conforming loan limit has declined to $625,000 from $729,750 in high-cost markets, which means those looking for loans above this limit will fall into the Jumbo loan category, even if their original financing was categorized as a conforming loan.
- Jumbo (non-conforming) mortgage rates aren’t lowering. Homeowners with jumbo mortgages are still seeing rates around 7% for 30-year fixed mortgages, so refinancing for them is not as appealing.
- No closing cost loans are higher. While mortgage rates are significantly lower than last year, interest rates for the no closing cost loan have gone up almost a point, which means if it is included in your mortgage, you won’t be saving as much as you’d hoped.
- Not everyone will qualify. Because defaults on subprime loans caused massive debt in the market, lending standards are now much stricter. As a result, about two-thirds of the population will not qualify for refinancing with lower interest rates. So if you have bad credit or an underwater mortgage, brace yourself for a declined application.
While low interest rates are a cause for celebration, one thing is for sure, they won’t last forever. Check to see how much you could save with a mortgage payment calculator. So if you think you qualify, you may want to submit your application before rates increase. But when you do, try to read all of the fine print to ensure that the refinanced mortgage you take on is one you can live with in the long run.