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Refinancing Now Looks Like a Smart Idea With Mortgage Rates Dropping Below Five Percent

[Oct 13, 2009.]


For borrowers thinking about refinancing, now looks like a great time to move from thinking to doing. Average mortgage rates on conforming loan amounts have dipped below five percent, and jumbo mortgage rates are at a four-year low.

The Mortgage Bankers Association reported an 18 percent surge in its refinancing index as a result of these lower mortgage rates. Borrowers are rushing to refinance, and they should be.


Five Percent on a $400,000 Loan Is Much Better Than Seven Percent on a $400,000 Loan

As usual with refinancing, the numbers tell the story. And right now--and who knows how long this window will stay open?--the numbers are telling a compelling story about refinancing ASAP.

According to Calculators4Mortgages.com, the monthly payment on a $400,000 home loan at five percent with a 30 year repayment term comes to $2,147.

The same loan with a seven percent interest rate bears a monthly payment of $2,661. Historically, seven percent mortgage rates are closer to the norm than five percent mortgage rates, as this mortgage rate chart shows.

Refinance mortgage rates are best served hot, and rates are hot right now.

The Government Is Doing Everything It Can to Make Refinancing Possible

There is a growing backlash against the U.S. government spending trillions upon trillions of dollars to propping up the housing and financial systems. For now, though, it may be best to put politics aside and refinance with the full force of the government on your side, while that's still the dynamic.

To make mortgages easier to get, the government:

-- Sponsors the Federal Housing Administration, which has quadrupled its home loan workload since 2006.

-- Sponsors the Home Affordable Refinance Program, which enables refinances up to 125 percent of home value.

-- Sponsors Freddie Mac and Fannie Mae, which buy mortgages from lenders so that lenders have minimal risk.

-- Buys trillions of dollars of mortgage-backed securities through Ginnie Mae and even directly through the U.S. Treasury.

-- Fannie Mae may start guaranteeing the balance sheets of independent lenders and loan originators, to further increase lending to homeowners.

Anyone who thinks that those unprecedented measures will continue unabated is making a bet that has bad odds attached to it. Instead, bet with the government and lock in a low refinance rate today. To read more about the forces affecting mortgage rates, read this article from U.S. News.

Refinance Cost Calculators Key to "Be Quick, But Don't Hurry"

Legendary UCLA basketball coach John Wooden coined the insightful phrase, "Be quick, but don't hurry." Tha wisdom applies well to the rush to refinance.

Use this refinance cost calculator tomake sure the cost of refinancing now will pay off.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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