Is Now the Time to Refinance Your Home?

A dramatic drop in mortgage rates has motivated some homeowners to wonder if they should refinance. A better question might be: Are they able to refinance?

Back when house prices were zooming upward, it was easy to refinance a mortgage. Lending standards were loose: You could borrow 100 percent of the home's value, you didn't have to document your income, and no one cared if you had a few late credit card payments in your recent credit history.

Lending requirements are a lot more strict now than they were during the housing boom. In many areas, house values have fallen. The combination of these two factors means a lot of homeowners will have to sit on the sidelines for this would-be refi opportunity. Over and over, mortgage bankers and brokers say that the lower rates are good news "provided you have the ability to qualify."

Maybe people already know that it's harder to get a loan nowadays.

David Kuiper, mortgage planner with First Place Bank in Holland, Mich., says few people have called to ask about refinancing. "It's starting very minimally, right now, but I think it's because the word's not out yet," he says. So his bank is taking the initiative and calling customers to let them know that mortgage rates have fallen.

Mortgage rates dropped abruptly this week, after the Treasury Department announced that the federal government is taking control of mortgage financing giants Fannie Mae and Freddie Mac. Fannie and Freddie don't offer mortgages directly, but they buy home loans from lenders, freeing up money so lenders can underwrite more mortgages.

In addition to taking control of Fannie and Freddie, the Treasury announced that it will buy new mortgage-backed securities. The effect of that announcement was indirect, but immediate: Rates on conforming, fixed-rate mortgages plummeted. In Bankrate's weekly survey, the average rate for a 30-year fixed mortgage fell four-tenths of a percentage point from the previous week, to 6.15 percent. And that reflected a small bounce-back: For a while at the beginning of the week, rates had fallen about half a percentage point.

2 myths keep refinancers away

Kuiper says customers don't necessarily know that rates have fallen so far so quickly. And even if they do know, some harbor a couple of myths. "One of they myths out there is that you have to wait a certain period of time before you refinance," he says. But that's only the case with mortgages with prepayment penalties -- and those have been rare in the last few months.

Those people can't refinance unless they have enough cash ... >

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