Saturday, October 30, 2010

MORTGAGE & FINANCE: With interest rates at 1951 levels, refinancing is a surefire way to save money

The last time mortgage interest rates were as low as they are now you could buy a gallon of gas for 19 cents and a loaf of bread for 16 cents.

So what’s turned the home loan clock back to 1951? The government’s attempt to fix an economy that seems stuck in first gear. One benefit of the Federal Reserve’s low-interest strategy is cheap loans.

Borrowers can finance their home purchase for an average 4.2 percent on a 30-year fixed-rate loan, Freddie Mac reported.

That means a homeowner with a $200,000 mortgage at 6.07 percent could save more than $230 a month on principal and interest payments by refinancing.

“People are starting to think, ‘I don’t want to miss something that may be a once-in-a-lifetime opportunity,’ ’’ said Cass Chappell, a financial planner in Atlanta.

Applications for refinancing jumped 24 percent last week over the week before, the strongest pace since April 2009, according to Mortgage Bankers Association figures.

The 30-year fixed rate loan has been under 5 percent for more than five months, Freddie Mac said. The last time rates were that low was April 1951.

For those with an adjustable rate, now is a good time to lock in a permanently low rate.

Also, refinancing makes sense for homeowners with good credit scores who plan on staying in the home for several more years.

Here are some points to consider:

■ Shop around.

A good website to check is You’ll find the latest mortgage rates for your area, along with calculators. Talk with your current lender and make it clear you’re shopping around. In order to keep your business, your bank may cut or eliminate some refinancing costs, including application fees and charges for a title search or inspection. Avoid unfamiliar lenders that may draw you in with introductory interest rates and have hidden fees.

■ Lock in a rate.

And get it in writing. This is a guarantee you’ll get the current low rate while your loan is being processed. Locked-in rates typically are for 30 or 60 days. It’s a bit of a gamble; rates could go down during the several weeks it takes to process your loan. But it’s unlikely they will drop much further.

■ Don’t cash out.

Resist the temptation to cash out some of the equity you have accumulated. Your home is a long-term investment, not an ATM. If you borrow only the amount in the refinancing that you currently owe on your home, qualifying for a loan will be much simpler.

■ Do your homework.

Make sure you can document your income and be sure your house is worth more than you need to borrow. Get your credit report to avoid surprises.

David Pitt Boston Globe October 21, 2010

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