What Does Low Mortgage Interest Rates Means to You

Mortgage rates sank to their lowest level recently. The averages for 30-year fixed rate mortgages, 15-year and five-year mortgages hit their lows.

So what does hitting the lowest mortgage rate mean? It simply means cheap mortgage for those who are planning to borrow money through mortgage. But what about those with existing mortgage, can they enjoy these cheap interest rates? Most likely, many mortgagor are having fixed rate mortgages or having the adjustable rate mortgages that are still in the lock period.

Fixed rate mortgages have their rates fixed for the lifespan of the mortgage whereas adjustable rate mortgages have interest rates locked for a certain period after which they are adjusted to the prevailing market rates. Fixed rate mortgages free the borrower from having to keep track of the mortgage rate movements. It eliminates the anxiety of rising interest rates that goes with the adjustable rate mortgages. As market condition changes, the interest rates move either upward or downward. When the rate is locked as in the case of fixed rate mortgages, the lender loses the opportunity of gaining more from increases in the interest rates while the borrower enjoys the security of paying the same rates even if the prevailing interest rates in the market are rising. On the other hand, when the interests rates are declining, it is the lender that enjoys the privilege of collecting the same interest amount for the mortgage while the borrower could not do anything but repay the loan at the agreed fixed rate even if the prevailing rates are decreasing. However, most fixed rate mortgages have provisions for options to refinance the loan in case the interest rates go significantly lower than the fixed rate. The mortgagors are therefore not totally denied to enjoy the privilege of availing the lowest mortgage rate.

With the mortgage interest rates hitting their lowest level, applications for refinancing is flooding the financial institutions. Refinancing is making a new mortgage, usually but not necessarily from a different lender, in order to pay off the balance of an existing mortgage which carries a higher interest rate and in effect enjoy the lowest mortgage rate being applied to the new mortgage. The term of the new mortgage may not necessarily be equal to the remaining life of the existing mortgage. The borrower may choose to shorten or extend the term of the new mortgage depending on his new capability to pay the monthly repayment amount. The borrower may also choose to have a different type of mortgage which he sees as more affordable and economical to him.

The consideration for application to refinance existing mortgages now that the mortgage rate is lowest depends upon the terms and conditions of the mortgage that you have. If the difference in interest rates is significant then it may be worth considering. Bear in mind that applying for new mortgages, as in the case of refinancing, involves additional cost in processing. Your existing loan may also require a closing fee if the loan is paid before its term ends. These and other variable costs should be considered in deciding whether or not to refinance your existing mortgage in order to benefit from the lowest mortgage rate.


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Lam Bong is an Author living in Sydney, Australia. He is interested in reading and creating websites. His latest website is about Sydney Accountants and accountants in Sydney on the web today.