Homeowners who missed the refinancing boom of 2002-03 have another crack at it while mortgage rates are below 6 percent.
Anthony Hsieh, president of LendingTree.com, an online mortgage site, noted that the prevailing rate of less than 5.75 percent for a 30-year, fixed-rate mortgage isn't far above the all-time low of 5.21 percent registered in June 2003, making it a good time to refinance.
Keith T. Gumbinger, vice president of HSH Associates, a mortgage information service based in Pompton Plains, N.J., said homeowners who bought even a year ago might be attracted to refinance at today's rates. "A year ago, a 30-year fixed was probably carrying a rate as high as 6.46 percent," he said. "Today, it's about 5.75 percent."
A homeowner who refinances will, of course, have to pay to do so, including appraisals, title search and closing costs. "But with a 30-year time horizon, they have time to get back any money they would have to spend" for the refinancing, Gumbinger said.
He noted that some of hybrid mortgages written during the previous refinancing boom -- especially loans that locked in a rate for three years, then began adjusting with the market -- are approaching that adjustment stage.
Holden Lewis, a mortgage expert at Bankrate.com, an online financial service based in North Palm Beach, Fla., said the key to deciding on a refinancing is how long the homeowner expects to keep the house. "Even if the rate goes down just a little, if you think you'll be in the house a long time, it might pay to refinance," he said, especially to lock in a fixed rate for 15 years or 30 years.
Lewis said that some good candidates for refinancing are:
* People with outstanding home-equity lines of credit. Home equity lines of credit carry variable rates that are tied to banks' prime lending rate, currently 6 percent. "There are people out there who took out a home equity line of credit at, say, 4 percent or 5 percent, that's now pushing 6 percent or 7 percent," Lewis said. "Some might want to refinance their mortgage and pay off their outstanding mortgage and their line of credit."
* People paying for mortgage insurance or carrying a "piggyback" loan. Home buyers who put down less than 20 percent of the purchase price on a home often are required to pay for private mortgage insurance. To avoid such insurance, they can take out piggyback loans. "You might be able to pay off that piggyback and the first mortgage by rolling them together into a new mortgage," Lewis said. If the home has appreciated, the new loan will cover 80 percent of the home's value and private mortgage insurance won't be needed, he added.
* People with adjustable-rate mortgages. "Some homeowners are starting to get nervous and thinking, 'Maybe I should lock in a fixed rate,' " Lewis said. Lewis said the rule of thumb used to be that a homeowner had to be able to lower the interest rate on a mortgage 2 percentage points to make a refinancing worthwhile, but that's not necessarily the case anymore. "Now you need to look at what your closing costs are, what your savings are and how long you intend to stay in the house," he said.