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Refinancing Opportunities


refinancing opportunities

Record Low Interest Rates Lead To Refinancing Opportunities

The entire financial debacle of the last two years was sparked off by a relatively small segment of the American home mortgage industry.  Of course, we are all well aware of the term “Sub-Prime Mortgage” now, but a few years ago, most people had never heard of the term.  In fact, most of the people who were sub-prime borrowers didn’t even know the term!

By simple definition, a Sub-Prime Mortgage is a mortgage note issued to a lender that could not qualify by traditional standards.  As a sub-prime borrower, these higher risk loans were offered at higher interest rates, and many were, of course, issued as adjustable rate mortgages, which meant that the interest rate was pretty low for the first few years of the loan, but after a certain period, the interest rate jumped substantially, which subsequently caused the monthly payment to jump substantially, which, in turn, caused thousands of Americans to immediately enter into default in 2007, 2008, 2009, 2010, and now 2011.

The Federal Reserve responded by immediately slashing interest rates in the U.S. in hopes of staving off another Great Depression.  These record low interest rates have yet to cause a huge turn-around in the U.S. economy as the housing market and labor market remain under intense duress 2011, but these record low interest rates have provided a great opportunity to refinance homes.

Have you refinanced yet? Quicken Loans can rush your refinance through very quickly so if you are in a hurry, give them a call.

Benefits of Refinancing

If you purchased your home before 2009, chances are you locked in an interest rate that is higher, and possibly much higher, than the typical 15 year and 30 year fixed rates that are currently available as of the second quarter 2011.  Currently, fixed rate mortgages on 30 year loans are well under 5% depending on your credit history and financial situation.

By refinancing your home, you are basically applying for the terms of your loan to be modified.  The primary term that you most likely want to change is the interest rate.  A lower interest rate will, of course, cause your monthly payments to be lower, it could cut several years off the life of your loan, and it can free up working capital.

Costs To Refinance

Typically, there are some costs when refinancing a mortgage.  It depends on the specific lending institution and loan modification program, but sometimes these costs are fixed into the loan, while other programs and institutions require the costs to be paid up-front in cash.

Check with your lending institution for more details on how much money you can save on your monthly payments by locking in these record low interest rates while they last.

If your rate is over 5%, you should definitely check with your bank. The interest rate at our current resident is at 4.75% so it is not worth refinancing. Our rental has higher interest rate though so I need to talk to the bank about it. This is a guest post.

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{ 17 comments… add one }
  • LifeAndMyFinances May 23, 2011, 3:54 am

    Luckily, my wife and I are just starting to look for a place of our own. This is a great time to buy and I’m seeing a bright future for us! 🙂

    • retirebyforty May 23, 2011, 2:21 pm

      Good luck Derek! Hope you can find some place nice, it’s a great buyer market right now.

  • Justin May 23, 2011, 7:30 am

    I’d be surprised if a lot of sub-prime holders that could benefit most from a refinance, say if they originally took out an ARM, would be able to refinance. Unless the home owner dealt with an unscrupulous mortgage originator they only would have been steered to a sub prime load if they didn’t meet the standards for a typical 30 year fixed, with the state of the economy and the value wiped out of the home equity market it’s a long shot that people that didn’t qualify for favorable loan terms at the height of the market qualify for one now.

    • retirebyforty May 23, 2011, 2:22 pm

      I read that banks are starting to refinance underwater loan, but it’s probably only for people with good credit.

  • krantcents May 23, 2011, 11:39 am

    I would love to refinance, but I will pay this off in 6 years. Anybody willing to loan me
    $60,000 at 3% without any closing costs? Yes, I have good credit.

    • retirebyforty May 23, 2011, 2:05 pm

      I’m in similar situation with my rental. When it’s that close to being paid off, I don’t know if it’s worth refinancing….

  • MoneyCone May 23, 2011, 12:09 pm

    The rates are down once again! For those who missed the super low rates last fall, this is a good second opportunity.

  • Darwin's Money May 23, 2011, 5:55 pm

    I was thinking of refinancing from my 30 down to a 10 or 15 and what I found was that with fees included, it was a virtual wash compared to if I had just pre-paid the same higher amount. The spread was decent, like a 4.625% down to a 3.75%, but the numbers just didn’t justify it. Depends on how far in your are, how big the spread is and how high the fees are…

  • Miss T @ Prairie Eco-Thrifter May 24, 2011, 8:51 am

    We normally would do a variable mortgage rate but interest rates were just so low when we bought our house that we locked in. Nothing has come close enough for us to bother looking at refinancing.

  • Jessica07 May 24, 2011, 11:22 am

    My husband and I don’t have a mortgage (*doing happy dance*), but we have been looking into investing in real estate. I’m going to print this off and put it in our little “thought binder.”

    Thanks for the great post. 🙂

    • retirebyforty May 24, 2011, 11:10 pm

      Wow, we would love to do some happy dance too, but that day is still far off. 🙁

  • Barb Friedberg May 24, 2011, 4:36 pm

    Hi Retire, Every time I am reminded of the mortgaage crisis, I become re-enraged. I couldn’t agree more that refinancing (if the numbers work, as Darwin mentioned) is a really smart idea. I remember double digit interest rates in the past! This is a great low interest rate environment.

    • retirebyforty May 24, 2011, 11:11 pm

      Our first mortgage was around 8%. The rate these days are great!

  • Squirrelers May 25, 2011, 11:46 am

    At rates like this, it’s a tremendous opportunity to refinance. I hope that people out there are taking advantage, and aren’t oblivious to this opportunity. You just know that there must be plenty of people out there still sitting on 6% rates but aren’t tuned in enough to realize how much money is being left on the table.

    Great time for 1st time buyers in terms of rates as well, as long as their credit is good! Still not sure about home values in many places, though. I’m still seeing prices that seem quite soft locally.

  • SomeFinanceForThought May 26, 2011, 12:05 pm

    I’m curious to see how many folks with interest rates around the 5% mark choose to consider the opportunity to refinance. My first impression would be that for most people the difference in interest rates would simply not be great enough for them to really come out with saving more money in the long run. Like Darwin said earlier, its the difference in spread in relation to how far into the finance agreement you find yourself in that matters the most. My advice for those thinking of refinancing would be to consider the options, but before making a commitment, do the math and be certain the newly presented opportunity is logical for your specific principal and rates.

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