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Is now the time to refinance?

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Posted On: 11/02/2011

QUESTION:

With mortgage rates now below 4 percent, is now the right time to refinance my loan?

ANSWER:

In late September Freddie Mac said that weekly fixed rates for 30-year mortgages had reached 4.09 percent, while 5-year ARM start rates were at 3.02 percent.

These rates are near or at historic records, but right now such financing is accessible to some borrowers but off limits to others.

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If you’re a qualified first-time borrower you can get today’s rates. Combine low-cost financing with the purchase of a foreclosed home or a property being offered through a short-sale and you should be able to acquire a property at a discount and with a low rate.

If you now own a home and want to refinance, you’ll need to look at your equity. Lenders will make loans when qualified borrowers have sufficient equity, but many homeowners today are underwater – meaning the size of their debt is greater than the value of the property. However, even underwater borrowers with good credit may be able to get a back-door refinance with a loan modification. Go to MakingHomeAffordable.gov and check out information regarding the Home Affordable Refinance Program.

The related question, of course, is whether rates can actually go lower. The Federal Reserve – an institution that is supposed to know something about interest rates – recently announced that it will spend $400 billion trading short-term debt for long-term debt. Put simply, the Fed is locking in today’s rates. Like homeowners, if rates continue to go down it can refinance, if rates rise the Fed will simply continue to pay off current loans at today’s low cost.

While low rates are certainly desirable for borrowers, in the general scheme of things it would actually be better if rates began to rise. The reason is that rising rates suggest more capital demand, more capital demand would likely mean more jobs and more jobs could lead to increased real estate demand.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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