By Catherine Brock
Mortgage rates are almost as low as they've ever been, and savvy, qualified homeowners are taking advantage of the trend to lower their monthly payments.
It's the sale of a lifetime and it's happening now. Better than the Macy's one-day sale, or the half-yearly sale at Nordstrom, this promotion could save you thousands of dollars over time. All you have to do is call up your mortgage lender and ask if you qualify.
On sale now: mortgage refinances
Remember back in 2004, when the financial media was harping on the "historically low" mortgage rates? At that time, average rates on 30-year fixed mortgages were floating around 5.50 percent. It was indeed significant: according to Freddie Mac's data (which only goes back to 1972), the annual average rate on 30-year fixed mortgages did not dip below 6.5 percent between 1972 and 2002. The highest annual average during that time was 16.63 percent, which happened in 1981.
But a new era is here. "Historically low," in terms of mortgage rates, no longer means less than 6 percent-now it means less than 5 percent. Recent announcements and actions taken by the feds have pushed rates down to as low as 4.75 percent for the most creditworthy borrowers. For the week ending January 8, 2009, the national average rate was 5.01 percent.
Saving money always fashionable
Homeowners are clearly dialed into the rate trend. Mortgage refinance applications picked up substantially in December, as homeowners jumped at the opportunity to save some money. According to the Mortgage Bankers Association (MBA), mortgage refinance activity increased by more than 60 percent during the week ending December 19, 2008. This increase is measured by changes in MBA's Refinance Index, which tracks refinance loan applications. Not all of those refinance loan applications will become funded mortgages.
Taking advantage of the trend
A refinance loan is generally appropriate when the available rate is at least 1 percent lower than the homeowner's existing mortgage rate. A smaller differential may still result in savings, but it probably won't be enough to justify the upfront closing costs associated with the refinance.
Homeowners also have to consider whether they can qualify for a refinance mortgage right now. Lenders are favoring good credit borrowers who have 20 percent equity in the mortgaged property. Those with less than 20 percent equity will be required to carry private mortgage insurance, the cost of which will offset savings generated by the lower rate.
With unemployment on the rise, job history may be a hot button, as well. Mortgage lenders want stability, and they're likely to shy away from loan applications that carry even hints of risk.
Experts say the sale on mortgage rates could continue through most of 2009. If that prediction holds true, some homeowners will have the opportunity to get their finances in order before they put in their refinance application. Mortgage borrowers are advised to talk with their lender about the requirements so they can plan accordingly.
