If you have seven and a half minutes, this is a better description of quantitative easing than I could ever provide.

Mortgage rates drop

Yesterday’s announcement from the Federal Reserve has resulted in lower mortgage interest rates today. Because mortgage rates are long term debt, they are connected to long-term Treasury bonds, specifically the ten-year bonds. As Treasury yields change, so do mortgage rates. Right now, mortgage rates have dropped to historic lows.

As a result, if you have good credit and if you have a reasonable amount of equity in your home, now might be a good time to refinance. Indeed, you could save tens of thousands of dollars over the life of your home mortgage loan if you refinance to these rates. Even 30-year fixed rates are below 5% right now. You can get even better rates with a 15-year fixed mortgage.

Post from: EveryJoe

Quantitative Easing and Mortgage Rates

1. A lower interest rate would mean less money paid over all.
2. If I kept a 30-year mortgage, my monthly payments would be much lower. I could invest the difference.
3. I could refinance to a 20-year mortgage or a 15-year mortgage, gaining equity faster and paying less interest overall.
4. On the down side, I might have to pay loan origination and other fees, depending on who I refinance with. (Prepayment penalties are not an issue; I won’t have any.)
5. Will I even qualify for a mortgage refinance? We did just buy a car, and we’ve only been in the house for a year and half.

Refinancing: Rule of thumb

The rule of thumb on refinancing is that you should refinance when the going mortgage rate is at least 1% below what you are currently paying. And with rates where they are at, we’re pretty close to that. Our rate is 6.02%, and last week’s rate was 5.04% for a 30-year fixed. 15-year rates are even lower. So it’s looking like it might be a good time refinance. Unfortunately, we haven’t been in our home very long (about 18 months) and we just bought a car. We may not get approval.

But I’m going through the checklist anyway. I want to see if refinancing would be a good idea, so I’m doing my research on refinancing, and on our situation. I’m really liking the 20-year mortgage thing. Using a mortgage refinancing calculator, I discovered that if we get a 15-year fixed mortgage, we would be paying about $200 more per month with a 4.86% interest rate, but save about $19,000 in interest. With a 20-year fixed mortgage, at 4.96% interest, we would actually be paying about the same amount as we are now. And we’d save more than $16,000 in interest. I’ve been leaning toward a 20-year lately, because I don’t know if I want to add another $200 obligation on top of that new-acquired car payment.

Fees and the erosion of refinancing savings

Of course, if there are fees to pay, the savings will be eroded. I think, though, if I call around (especially to the credit union we belong to), I could probably get away with avoiding loan origination fees, appraisal fees, credit check fees and documentation fees. Some of the local banks are really looking to attract business. And even with paying some of the fees, we’d still be saving thousands over the life of the mortgage.

Of course, we still have to get approved. But I think I’ll at least go talk to someone about it. After all, these rates are a once-in-a-lifetime chance.

What do you think? Is now the time to refinance?

Post from: EveryJoe

Is Now the Time to Refinance?

Happily, there are a number of online financial planning tools that can help you figure out what you need to do to move forward on the path to financial freedom. Here are some of my favorite places to go when I need help making a personal finance plan:

• Bankrate.com calculators: If you are looking for calculators, this is the place to go. You can find out whether it is worth it to refinance, how long it will take to pay down debt and figure out how you can save more money.
• DebtGoal personalized debt reduction: I really like how this site helps you figure out a way to pay down debt. Create a personalized debt reduction plan, and see how quickly you can pay off debt in different scenarios.
• Instant Budget Make at CNN Money: This is a great way to figure out how you stack up with others in similar categories, and help you analyze your spending. I also really like the budget planning tools available at Mint.com.
• Vanguard financial planning tools: If you want help with creating an investing plan, or if you are trying to create a retirement plan or prepare for college, there are some great tools at Vanguard. I also really like this handy investment risk tolerance quiz that you can take at Rutgers. A must if you are planning to put together an investment portfolio that works for you.
• Life Happens insurance calculator: Figure out how much life insurance you are likely to need with this handy calculator. It comes from a non-profit together by a number of life insurance organizations.
• CreditKarma.com: Keep track of your credit score for free with help from Credit Karma. Also includes a neat Credit Card Simulator that can help you determine how certain financial decisions can affect your credit score.

Do you have any favorite online financial planning tools?

Post from: EveryJoe

Online Financial Planning Tools