Friday, Jan. 09, 2009

Rates lowest since '71; time to refinance?

Fixed rates offer homeowners relief

The economic turmoil of 2008 has left few bright spots, but here's one: Mortgage rates have plummeted.

Freddie Mac reported Thursday that average rates on 30-year fixed mortgages dropped to 5.01 percent this week, down from the previous record of 5.1 percent set last week. Rates at are their lowest since the company started its survey in April 1971.

Rates have fallen since late November, when the Federal Reserve announced a plan to spend up to $500 billion to buy up mortgage-backed securities in an effort to buttress the distressed U.S. housing market.

Some economists predict a further slide in rates once Barack Obama becomes president and rolls out an economic rescue plan.

That could mean thousands of dollars in savings for homeowners.

"The people who have done everything right are now going to benefit and will be very well rewarded," said Mari Adam, a financial planner and owner of Adam Financial Associates Inc. in Boca Raton, Fla.

"We are saying to our clients, anyone who can refinance should refinance. You can save a lot of money. People can make a real difference in their balance sheet."

As consumers struggle with rising costs or job instability, such attractive rates can offer much-needed relief on monthly payments.

Other borrowers see an opportunity to pay off a mortgage sooner, or shed a risky adjustable rate and get the peace of mind that a fixed payment brings.

Paul Carroll, owner of Carrollton Mortgage Co. in Modesto, said he is seeing some refinancing activity as the rates have come down.

Carroll said his old clients are calling to see if they should make a move, but he's cautioning many of them to wait because rates haven't come down far enough to justify the cost of refinancing.

People don't stay in their homes as long as they used to, so it's important to understand the costs associated with refinancing, he said.

"If the rate drops enough to break even on the refinancing in a couple of years," Carroll said, "then it's worth doing now."

He's telling clients the interest rate should be a full point below their current loan before refinancing. "I used to tell people a half point, but the dynamics keep changing," he said.

Although rates have dropped most on so-called "conforming" 30-year fixed mortgages, rates have drifted down as well on 30-year jumbo, or nonconforming, loans of more than $417,000 and on adjustable-rate mortgages. Rates on nonconforming loans, however, are closer to 6.75 percent.

Lock in rate or wait?

"The most asked question, the question of the century, is what will rates do?" said Neil Sweren, president of Allymac Mortgage Services in Owings Mills, Md.

With no clear answer to the question, brokers and other experts recommend homeowners at least find out if they qualify for a new loan.

The housing crisis and tight credit have left many borrowers owing more than their house is worth, or with damaged credit, putting low rates out of reach for many as lenders have raised standards.

But for those who do qualify, the opportunities are out there, with rates as low as 4.5 percent on 30-year mortgages.

Opinions differ on whether to lock in a rate that offers immediate savings or gamble that rates will go lower.

Modesto's Carroll said people are nervous about the economy and don't want to lock in rates yet.

He said he's swamped with people who want to be prequalified for loans and then go look for homes.

"They're the ones who are out there making offers on house that have multiple bids," he said.