Is it Time to Refinance or Buy?

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Mortgage rates have reached their lowest levels in 50 years, Freddie Mac says, providing a reason for many homeowners to refinance their mortgages or boost buyers on the hunt. The government-sponsored mortgage corporation Thursday said the 30-year fixed rate averaged 4.15 percent, breaking the previous record low of 4.17 percent set November 11, 2010, according to its Primary Mortgage Market Survey.

Long-term, fixed-rate mortgages backed by the Federal Housing Administration averaged 4.08 percent for several months from 1950 to 1951.

"With today's record-low mortgage rates, combined with low home prices in many parts of the country, this is a great opportunity for consumers who are looking to buy a new home or are considering refinancing their existing home loan," Frank Nothaft, chief economist with Freddie Mac, told ABC News.

Freddie Mac reports show a trend toward people putting "cash-in" at the time of refinancing as well as choosing to shorten their loan terms to take advantage of the low mortgage rates, Nothaft said.

More than 95 percent of people who refinanced chose a fixed-rate product and 77 percent either maintained or reduced their loan amount, according to Freddie Mac's reports last quarter.

"The 15-year fixed rate mortgage is a popular refinancing product, especially for baby boomers thinking about retiring in that 15- to 20-year time frame who want to have the peace of mind knowing they'll have their mortgage paid off," he said.

But rates will not stay low for the long term.

"We don't expect rates to stay this low for long, but we do expect them to start moving up gradually and closer to the 5 percent level around year end," Nothaft said.

The Federal Reserve released a statement Aug. 9 that it will keep the federal funds rate low, possibly at 0 to 1/4 percent, at least through mid-2013.

Steven Leslie, lead analyst for financial services at the Economist Intelligence Unit, part of the Economist Group, said that although the federal funds rate is a base rate, mortgage rates are also likely remain low.

"With the global economy not on a strong footing, my expectation is that mortgage rates will remain low for an extended period of time. So new buyers will not have to worry about purchasing a property and financing it immediately because they will enjoy these low rates," Leslie said.

And how low should rates go before you choose to refinance?

Leslie said a drop of one percentage point used to be the rule of thumb in determining if a homeowner should refinance their mortgage.

"But it depends on the upfront fees, the size of the mortgage and its terms," Leslie said. "A lot of people can calculate and figure out if refinancing is worth it."

Leslie also said a homeowner should consider the cost and time to obtain another appraisal and a property title search.

Leslie also said the approval time to get a mortgage will still take longer than it did during the housing boom years before 2007.

"The boom years of the last decade, there was a lot of bad mortgage lending," he said. "The lesson from that is borrowers should be very wary and attentive."

Home buyers and borrowers should read the mortgage terms to understand them and practice due diligence to determine if they are getting a good deal, he said.

Freddie Mac's Nothaft said consumers should know their FICO score, cast a wide net and look for a lender who will give them the best rate when refinancing.

"In today's lending environment, it's also important to remember the 4-C's when looking for a mortgage: capacity, capital, collateral, credit," he said. "In other words, have stable income, have assets or savings, be prepared to make a common-sense down payment, and have a good credit history."

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