With mortgage rates low, is it time to refinance?

Consumer Reports News: May 24, 2010 09:36 AM

Mortgage rates dropped again this past week, with both the 15-year fixed-rate and the five-year adjustable-rate falling to record lows, according to Freddie Mac’s weekly survey. The 30-year fixed rate averaged 4.84 percent, its lowest level since December 10, 2009.

With rates so low and housing prices depressed in most spots, it would seem like the perfect time for home buyers to jump in the market. However, home purchase applications plummeted 27 percent last week, and have declined by almost 20 percent over the past month, according to the Mortgage Bankers Association.

Perhaps consumers are still feeling a little shaky about the housing market, or people are waiting to see what happens to the mortgage process after the financial reform bill becomes law. 

Although we can’t be sure what provisions will remain after the House and Senate bills are smooshed together, it may limit the ability of mortgage lenders to charge "prepayment penalties," or fees borrowers will owe if they pay their loan off early. Those penalties could be banned for certain riskier mortgages and limited for traditional loans like 30-year mortgages carrying a fixed interest rate. The law might also prohibit paying brokers and loan officers more if they steer borrowers to higher interest rates or certain risky features.

Although low rates haven’t pushed people to buy, the refinancing market is humming. Its share of mortgage activity increased to 68.1 percent of total applications from 57.7 percent the previous week. If you are considering refinancing, check out our tips.

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