Prime interest rates remain historically low, however, the strong possibility of increases means the time to refinance your mortgage or buy a house is now. Many have already taken advantage of the low rates but those who have not should strongly consider refinancing options. The current prime rate of 3.25% has been in place since 2009; the average rate for the nine years prior to 2009 hovered around 6.33%.
According to the Bureau of Economic Analysis, the average interest rate on an outstanding mortgage in early 2012 was over 5.09%. Homeowners are now regularly finding that by refinancing, they can substantially reduce their interest rate and even slight changes in your rate make a significant difference in the amount you pay each month.
In order to receive the lowest possible rate, shop around with local banks and mortgage companies. Often, people make the mistake of only checking with large national banks and consequently overlook local lenders who frequently offer the best rate. Additionally, local banks and mortgage companies tend to offer a level of personalized customer service not possible with national lenders.
While the federal government continues its support of the housing market by keeping interest rates artificially low, subtle indications are beginning to emerge that suggest that the government may be preparing to reduce support. Other federal housing programs like FHA Streamline Refinancing, which assists homeowners in refinancing regardless of home value or equity, may also be on the out in the not so distant future.
Another reason Alabama homeowners are choosing to refinance now rather than later is the current home value depreciation trend. According to a recent report from Al.com, home prices fell across the state by 4.6% since last year. If home values in the state continue to drop, your bank-calculated home equity may also drop. With less home equity, your loan-to-value ratio may be lower which substantially impacts your mortgage rate.
Bottom line: take advantage of refinancing options now before prime rates double.