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Mortgage Rates Hit Record Low

[Apr 3, 2009.]


Mortgage rates have continued their decline. The Federal Reserve's buying of mortgage-backed securities (MBS) has certainly helped to keep rates low at a time where few other investors are interested in these investment vehicles.

Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.78 percent this week, from 4.85 percent last week. This is the lowest in the history of Freddie Mac's survey, which dates back to 1971. Rates are down by more than a full percentage point from a year ago.

Lenders, however, have tightened their standards dramatically over the past year, so the best rates are available to those with solid credit. The rates quoted by Freddie Mac also assume the borrower is paying .7 percent of the loan amount in points and fees to obtain that rate.

The drop in mortgage rates has driven more homeowners to apply to refinance their mortgage. Applications for refinance loans were up 3.7 percent for the week ending March 27, the Mortgage Bankers Association said today in releasing its Weekly Applications Survey.

In order to qualify for a mortgage refinance at these record setting rates, homeowners must be the "cream of the crop". They need to have a middle credit score (FICO) of at least 740. They need to be borrowing at least $150,000 and not be looking to extract any equity from their home. They also need to escrow their property taxes and insurance with the mortgage payment.

The borrower's property must stand up as well. It needs to be a singe family residence that is occupied as a primary residence by the homeowner. It must appraise at a value high enough so that based on the new loan amount, there is still at least 20 percent equity left in the home.

Finally, there should be no other liens against the home including second mortgages.

While these guidelines will vary from lender to lender, they serve as a good rule of thumb to determine if one would qualify to refinance at these historically low rates. All other underwriting requirements with regards to income and assets would also need to be met.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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