The main reason behind a mortgage refinance is to have a lower interest rate. With a lower rate, mortgage payments would be more affordable for homeowners. But if you have a low credit score, refinancing your mortgage might be a little challenging.
The good thing is a company that offers a HARP home loan would be able to assist you. The HARP or Home Affordable Refinance Program is a federal program designed to enable homeowners to refinance with a more lenient set of criteria.
Lower Interest Rates
Interest rates always fluctuate, as they reflect current economics, particularly the supply and demand of money. Inflation, for one, has a direct effect on interest rates. When the rate of increase in consumer goods’ prices is high, then investors would want to have higher interest rates. There’s more demand for money, and borrowers are more willing to pay interest to have access to money at the moment.
Also, lenders would want the cost of money to increase to compensate for the lower buying power. If inflation were constant or didn’t change, the interest rate that lenders charge would also not change. When buying power is strong, inflation is lower. With lower inflation, interest rates are also lower.
Interest Rates over the Long Term
Before the 2008 housing bubble, houses were more expensive, and the interest rate was higher. Nowadays, the interest rate is lower and property values are also lower.
The low-interest rates are enticing to homeowners. With a low-interest rate, homeowners are tempted to refinance their loan. A 1% to 2% difference in interest rates can lead to significant savings over the repayment period. It also leads to lower monthly payments.
There are associated costs to refinancing too, however. There are closing fees and insurance to consider. These are normally settled before the contract is signed. But these amounts can also be included as part of the new loan.
Loan refinancing can lead to savings over the repayment life of a mortgage. With a lower interest rate, the monthly amortization is more affordable.