Now is the Time to Refinance a Home

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As fortune cookie-inspired as it may sound, one of my mother's favorite sayings is "good fortune has nothing to do with luck." She believes that the so called "lucky ones" are the kind of people that aren't afraid to take advantage of the opportunities presented to them. And for new home buyers or owners looking to refinance, the current mortgage rates couldn't be more enticing. Thirty-and 15-year fixed rates this week fell to their lowest levels since the spring of 2004, Freddie Mac reported last week.

Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. The company purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets.

Rate drop
The average rate on 30-year fixed mortgages tumbled 21 basis points in the last week, falling from 5.69 percent to 5.48 percent, while the average 15-year fixed mortgage dropped 26 basis points, from 5.21 percent to 4.95 percent. The last time the 30-year fixed was this low was March 25, 2004, at 5.4 percent. The 15-year fixed hasn't been this low since April 1, 2004, when it averaged 4.84 percent.

Freddie Mac also announced that adjustable-rate mortgages (ARMs) fell sharply this week to lows not seen since 2005. The five-year Treasury-indexed hybrid ARM sank from an average 5.4 percent to 5.13 percent, and the average one-year ARM dropped from 5.26 percent to 4.99 percent.

In a statement published on Freddie Mac's Web site, Frank Nothaft, the mortgage company's vice president said: "When the Federal Reserve cut the target federal funds rate by three quarters of a percentage point, the action was extraordinary in both the magnitude and the timing of the rate cut: It is the largest cut since October 1984, and also the first time in more than six years that the Fed took such action outside of a scheduled Federal Open Market Committee meeting. The last time the Fed decided to ease the target federal funds rate in an unscheduled meeting was immediately after Sept. 11, 2001. As a result, mortgage rates continued trending down for the fourth consecutive week across loan products."

Congressional stimulus package
Working with the industry's mortgage giants, congressional leader's last week struck an agreement on a stimulus package that includes a one-year rise in the loan limit for Fannie Mae and Freddie Mac, to $729,750. USA Today reported on Friday: "Currently, Fannie and Freddie can buy only mortgages that are $417,000 or less. Jumbo loans [those more than $417,000] have higher rates because they're viewed as riskier for investors, and that's hurt borrowers in places like California, where the median home costs about $489,000. The stimulus package also raises the dollar amount on loans insured by the Federal Housing Administration (FHA), which helps out first-time and working-income families, to $729,750 from $362,790. Congressional leaders hope that the plan will help millions of homeowners refinance to take advantage of the falling interest rates.

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Keith Elliott Jr
KEIRE Realty Group - Manassas, VA
Principal Broker/Owner

Hi Amy,

Welcome to Active Rain and congrats on your first post! The opportunities to learn and network are incredible here. Best of luck to ya!


Jan 29, 2008 12:59 PM #1
Amy Le
Thanks Keith. I look foward to contributing my posts and participating in the dialog at Active Rain.  
Jan 30, 2008 01:42 AM #2
I believe the most important issue that you neglected to state in your article is that most of the borrowers today - can't refinance due to the lack of equity in their home.  It's great to talk about it, but when it comes down to it, most borrowers took out 80/20 loans and over equity, equity line of credits.  They simply don't have the value in their home to refinance.  Especially, with home values continuting to decline. 
Jan 30, 2008 04:56 AM #3
Amy Le

Hi Sarah,

You are comepletly right. While rates will be lower, this is also a market where lenders and investors are much more aware of risk and will gravitate toward borrowers that represent less risk. I wrote the blog post based on a friend's current situation. She is fortunately qualified to refinance, but was freaking out two months ago when she realized her ARM was about to be reset in the comming year. She's a very smart and success business woman who got herself into a stupid situation when she took out a loan with an ARM. While home values have dropped drasticlly in some markets, there are still housing markets that are floating above the red. I think regardless of your situation, home owners in trouble should look into all the possible soultions.

Jan 30, 2008 05:19 AM #4
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