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Mortgages: A rush to refinance

The Federal Reserve

The Federal Reserve’s surprise decision last week to cut interest rates by three-quarters of a percentage point should give some homeowners comfort, said Jane Birnbaum in The New York Times. “Economists and consumer advocates agree that the biggest beneficiaries will be consumers who have both good credit and secure jobs.” But the consumers most in need of relief—those with blemished credit and too much debt—may not be able to qualify for less expensive loans. Lenders, says the Center for Economic and Policy Research’s Dean Baker, no longer “want to build up a portfolio of loans to people they consider poor credit risks.”

“If you haven’t refinanced your mortgage recently, do it now,” said Brett Arends in The Wall Street Journal. The rate on a 30-year fixed-rate mortgage is now running around 5.31 percent, according to Bankrate.com. “The current averages are among the lowest seen in recent history, and they’re a full percentage point or more below levels seen as recently as last fall.” Borrowers with good credit, 20 percent down payments, and “conforming loans” of less than $417,000 may even qualify for loans near 5 percent. (Borrowers who carry “jumbo” mortgages—those more than $417,000—won’t qualify.) The key is to move fast: Many lenders have slashed their staffs to the bone, and as paperwork starts to pile up, the best rates may already be slipping away. “If history is a guide, low rates on conforming loans may not last.”

Refinancing won’t make sense for everybody, said Brendan Case in The Dallas Morning News. Before you rush to refinance, consider two factors: how much you’ll save each month and how much you’ll pay in closing costs. “Depending on closing costs and other variables, it can take several years for a borrower to recoup the money spent to refinance.” If you think you’ll move before your “break-even date,” refinancing may not be worth it. You also may not be able to refinance at all if your home’s estimated value is less than your current mortgage—a scenario many owners will run into.

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