How to Take Advantage of Lower Mortgage Rates

A Home Buying Article Contributed by Robert Scalia

How Can You Make Lower Mortgage Rates Work to Your Advantage?

In the past number of years, the feds have lowered interest rates and mortgage rates to historical. Their hope, of course, was to stimulate the economy by lowering the cost of borrowing money.

In this present situation, the inevitable questions arises: should you as a potential homeowner take advantage of this lower mortgage rate to either buy a home or refinance your existing mortgage? lower interest rates to refinance your mortgage? Or should you take out a home equity loan instead? Perhaps now's the time to get the car you've always wanted or search for a new credit card deal.

The trick is to figure out how you can best get lower mortgage rates working for you.

When the Mortgage Rates Drop, What are Your Options?

There are a number of various mortgages available when mortgage rates are lower in the market. For starters, there is a fixed rate mortgage. You must keep in mind that slashing interest rates won't always result in drastically lower rates for fixed-rate mortgages. It is the bond rates,and not the fed rate, that in fact drive fixed mortgage rates.

And forget the piece of advice that says it only makes sense to refinance if the new interest rate is at least two percentage points lower than the current rate you are locked into. That may have been true sometime in the past

when only 30-year fixed rate mortgage. It just doesn't apply anymore.

Another type of mortgage you might want to get informed on are adjustable rate mortgages (ARMs). These mortgages tend to follow short-term interest rates - the Treasury bill rates, for example - which in turn are dependant on the fed rate.

An ARM could be a viable alternative if you're planning to stay in your home for a couple of years only. In this case, you would probably get an ARM for significantly less than a fixed rate mortgage. And keep in mind that adjustable rate mortgages are a nice alternative for younger people who would otherwise have a hard time getting a loan at higher fixed interest rates. Your monthly payments are lowered, which automatically lowers your monthly payments and makes qualifying for the loan all that much easier.

And lastly, home equity loans are another viable option. Hoe equity loan rates tent to follow the prime rate, which means that they are directly affected by the Fed's rate cuts. However, keep in mind that these rates will almost always be higher than regular mortgage rates.

So with Mortgage Rates Being Low, What's the Verdict?

Although all three options can work to your advantage, when it comes to lower mortgage rates, this would be an excellent time to take out a home equity loan.

This doesn't necessarily mean taking out a home equity line of credit would be as beneficial. And it's always important to remember that just how much benefit one can derive from this option depends on how wisely it is used.