Lower Mortgage Rates Make Refinancing a No-Brainer

Back at the end of March when the Fed stopped buying mortgage-backed assets, economists predicted that mortgage interest rates would start to drift higher toward 6 percent.

Well, they were wrong: Rates dropped to 4.2 percent for a 15-year fixed-rate mortgage and 4.87 percent for a 30-year fixed-rate mortgage.

What caused interest rates to head in the opposite direction? We can credit a perfect financial storm that is actually helping home buyers and home refinancers for a change:

So if you thought you missed your best chance to refinance, think again.
You still have time to take advantage of these low rates, but don't wait too long. If you're holding a mortgage with interest rates over 6 percent, or if you have an adjustable rate mortgage and know you're planning to stay in the house past the time of your next adjustment, it's time to refinance.

As I read comments to refinance stories on the Internet, the most frequently seen comment is: I want to refinance but I can't because my house is "underwater." Even that's not a good excuse.

The Making Home Affordable Refinance program is still available. Even if your first mortgage is 125 percent of your home's value, you still might qualify to refinance to a lower interest rate. For example, if your home's value is $200,000 and your mortgage is $250,000, you still have a chance to get a refinance through the Making Home Affordable program. But your loan must be held by Fannie Mae or Freddie Mac to qualify for that program.

If you do own an underwater home, it's possible that you could get a principal reduction when the FHA program becomes available in the fall, but the full details of that program are not known. Will interest rates still be as low? That will depend on the Fed's move in its upcoming meeting.

While economists don't expect the Fed to raise interest rates in June, given the current Euro-zone crisis and its impact on the global economy, they could still signal an interest rate increase in August. Their decision to begin raising rates will only be done when the Fed believes that the economy shows a strong sign of growth.

The Fed has signaled that when it does start to raise rates it also would start to sell some of the trillions in assets, including mortgage-backed assets, that it bought during the downturn. As it sells those assets, mortgage rates will likely move up more quickly. So don't wait too long, if you're trying to catch the trough of the interest-rate wave.

Lita Epstein has written more than 25 books, including "The 250 Questions Everyone Should Ask About Buying Foreclosures" and "The Pocket Idiot's Guide to Personal Bankruptcy."
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