Refinancing Worth It - but Not Easy
Refinance, If You Can
Rates May Be Tantalizing, But Be Prepared to Jump Through Many Hoops
By Pat Mertz Esswein, Kiplinger - Yahoo Finance
4-29-2009
The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.
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What’s the outlook for rates?
Expect the 30-year fixed rate to hover near 5% for the balance of this year or, if the economy improves a tad, to creep up to 5.25%, says Keith Gumbinger, of financial publisher HSH Associates. HSH’s survey of lenders pegged the national average 30-year fixed rate at 5.01% in late April. The average 15-year fixed rate was 4.6% and the average 5/1 adjustable-rate mortgage (which has a rate that’s fixed for five years, then changes every year after) was 4.98%.
Given that the spread is so narrow between a 30-year fixed-rate loan and a 5/1 ARM, and that rates are at historically low levels, it makes no sense to take out an ARM now.
Rates will rise when inflation heats up, but that’s not an immediate risk. Kiplinger’s forecasts that the rate of inflation will stay steady for at least the next couple of months.
Who qualifies for the best rates?
You’ll generally get the lowest rate on loans backed by Fannie Mae or Freddie Mac — together they back about two-thirds of all mortgage loans — if you’re taking out a conforming loan, and if you have a credit score of at least 720 and equity of 20% or more. Other factors that will help: if the property you’re refinancing is the single-family home you live in, if you don’t take out some of your equity in cash when you refinance, and if you don’t take out a home-equity loan or line of credit. Of course, you can reduce your rate by paying points at closing. A discount point is equivalent to 1% of your loan amount. Paying one point usually lowers your interest rate by 0.25 percentage point.
http://finance.yahoo.com/loans/article/107030/Refinance-if-You-Can