Refinancing Picking Up Again

Well, with interest rates a bit lower, it seems that Americans are taking advantage of that. According to Realty Times, homeowners have applied to refinance this week at a rate that hasn't been seen since February 2005.

If you can clear off high priced debt (like outstanding credit card balances) by refinancing, this is the right thing to do! You'll get rid of debt that could be at rates as high as 30 % or higher, and you'll end up with more manageable payments as well. Of course, you'll want to avoid getting into the same kind of trouble again, by using your credit cards only for purchases that you'll be able to pay off right away.

The current run of refinancing is being driven in large part by another problem though; about 50 percent of refinancing requests now are to convert an existing mortgage! That's because people are getting out of exotic loans, such as interest only mortgages. It's a smart move. You don't want to get caught with a home that is losing value and a mortgage that isn't being paid down.

So, what has made refinancing popular attractive now? Well, 30 year fixed rate loans have dropped to about 6.15 percent, which is lower than we've seen in 10 months. Some analysts think that rates could go even lower in the short term. Apparently, some are predicting rates as low at 5.75 percent by 2007, as long as crude oil prices keep going down and inflation stays in check.

You could make a mistake with refinancing. The wrong move is to be taking equity out of your home for discretionary spending at this point. Given that there is negative pressure on the prices of homes, taking equity out now could leave homeowners with mortgages that are worth more than the homes. That's a situation I know something about; I wouldn't wish it on anyone.

Michael

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