record low mortgage rate

Managing Your Mortgage the Right Way

The one sure bright spot for borrowers: ultralow mortgage rates. According to Freddie Mac’s weekly survey, the 30-year mortgage averaged a record low 4.69% for the week ending June 24, down from 4.75% the week before and 5.42% a year ago. CAll GSF Mortgage Aurora today for the most current rates!

Given the favorable rate environment, borrowers might be feeling pretty smart after snagging a great rate on a home loan. But there’s plenty of room for financial slipups while you’re paying off that mortgage. Here are some pitfalls to watch out for while managing your mortgage.

Not refinancing when you should

Homeowners can lower their costs by refinancing, but only if they can recover the refinancing costs in a short period of time relative to how long they expect to be in the house. If you foresee living in the house for another five years, for example, and can expect to recover the associated costs within two or three years, then refinancing is a savvy move.

Refinancing when you shouldn’t

Some borrowers assume that refinancing from a 30-year loan at 6% to a 30-year loan at 4.75% will save them in reduced interest payments. That’s not always the case if you’re essentially extending the term of the loan. If you have just 10 years left on a 30-year mortgage and you’re offered an opportunity to reduce the payments by taking out a new 30-year mortgage, it’s not a win.

Getting complacent about your adjustable rate

Homeowners who have adjustable-rate mortgages have seen their payments go down as rates have decreased. But these rock-bottom rates can’t last forever, and before you know it, you’ll get hit with a nasty rate increase when your ARM resets. One way to avoid that potential surprise is to refinance into a fixed-rate loan before the impending reset. Locking in a rate now is a particularly good idea for borrowers who had gotten an ARM with the intention of living in the home for, say, five or six years, but who, because of the bleak housing market, have decided to stay longer to wait out a rebound in values.

Not prepaying when you should

Think of prepayment as one type of investment. If you have a good amount of cash sitting in the bank earning a paltry 1% or 2%, you should seriously think about using that money to pay down your mortgage balance. Paying down your loan amount earns a return equal to the rate on your mortgage.