Low Rates Have Changed the Paradigm

The recent low mortgage rates have changed the point at which many mortgage professionals fell that it is advantageous for borrowers to refinance. In the past, many mortgage professionals believed that borrowers should refinance if they were able to reduce their present mortgage rate at least 1 point, however with the recent low rates many people believe this has changed. Since rates are so low, the small change is a greater percent of the original rate.

In the past a 1 point reduction on a rate of  8% was 12.5% decrease of the original interest rate. Now with rates a lot lower a .75 point reduction on a rate of 5.25% is a 14.3% decease of the original interest rate. If points continue to decline borrowers may find it more advantageous to refinance with less of a reduction from the original rate. Borrowers should be aware of this new paradigm as rates continue to decrease.