As the Fed cut rates consectively to revitalize the economy homeowners are seeing a golden opportunity to save money and reduce credit obligation. With the recent drop in interest rates, homeowners carrying two mortgages are deciding to refinance, combining both the first and second mortgages into a single loan at a better interest rate.
If one of your current mortgages already carries a low interest rate, you should only refinance it if you can match or better the rate with your new loan.
Although you do not have to combine both mortgages in order to refinance if both rates are high and current rates are significanly lower, say .50 basis points lower why not do so if you are able. You should be able to reduce your interest charges dramatically.
What ever you do get out of that ARM. No one really knows what the economy will look like months ahead.
That said get out of the ARM as soon as possible. ARMs are volatile and can alter your financial situation drastically. Get into a fixed rate ASAP.
The Fed is expected to cut rates .50 bps following a historic rate cut of .75 bps just last week. It now is at 3.5 percent, but is expected to drop to 3 percent at the Fed meeting Jan, 30th 2008.
Banks would be expected to lower their prime lending rate by a corresponding amount — from 6.5 percent to 6 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans. That means both the funds rate and the prime rate would be at nearly three-year lows.
Compare home mortgage rates offered by lenders to those you currently have. You may be able to save hundreds if not thousands over the life of the loan refinancing at today's lower rates.