Is it Time to Refinance? The housing crisis has driven interest rates down on mortgage loans. That doesn't necessarily mean it's the best time for everyone to refinance.
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Is it Time to Refinance?

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Is it Time to Refinance?

Is it Time to Refinance?

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And as Chris said with the Fed dropping interest rates, a lot of people are thinking about refinancing.


Here with us is DAY TO DAY personal finance contributor Michelle Singletary.

Michelle, welcome back. And why is this the time to refinance? I thought all the loan money had gone away.

MICHELLE SINGLETARY: Well, you know, because rates are coming down, there's a group of folks who haven't refinanced in recent times and were sort of waiting for rates to come down. And for them this is a great time.

Now, of course these are people who've got good credit histories, got some good stable income, who may have just been sitting back, waiting for this time to come.

CHADWICK: So if you're in that category and you have a mortgage under what circumstances - your rate's a little too high or what?

SINGLETARY: I think it's two groups of people. Your rates are high, probably maybe over 6 or 7 or even 8 percent. Those people who have jumbo loans, you know, six, seven, eight hundred thousand dollar home loans, and then those whose rates are about to reset, they have an interest-only loan or an ARM, an adjustable rate mortgage, that may be resetting in the next couple of months. Those are the folks that could take advantage of refinancing right now.

CHADWICK: Okay. So say you've decided you're going to try to refinance - what do you do about your credit score? And explain again how that figures in.

SINGLETARY: Right now your credit scores matter greatly. I mean in the past they mattered, but now because there has been a credit crunch and a tightening of standards, lenders want people who have good credit scores. Now, you have three credit scores from the three major credit bureaus.

When you go get a home loan or refinance, they look at the middle score, and so it is crucial that you have a good credit score. And how do you do that? You pay your bills on time. You haven't maxed out your credit cards. If you're in that position and you're thinking about refinancing, you might want to wait a little while before you refinance to get your credit scores up.

CHADWICK: All right. Well, if you wait a little while, maybe Congress will have passed the stimulus package. They are certainly talking about trying to get that through as quickly as possible. And there's something in there too that could help with refinance.

SINGLETARY: That's right. There is a deal on the table to raise the limit on what loans qualify as conforming by Fannie Mae and Freddie Mac, and they are called jumbo loans. And jumbo mortgages are loans where the principal amount is more than $417,000. So when the credit crunch hit, the rates for jumbo loans spiked, and in many cases as much as 8 percent or more.

And right now, with what's on the table, it's possible that jumbo loans that reach as much as almost $730,000 may qualify for Fannie Mae and Freddie Mac to buy, which means that the rates for those loans will come down. So if you have a jumbo loan, and again, this is a loan that is more than $417,000, if this package plan passes as it is now, you may actually get a lower rate on that jumbo loan because now it would be considered conforming.

CHADWICK: And that certainly would be an inducement to refinance.

SINGLETARY: That's right, because lenders will be more willing to buy these loans because they can sell them to Fannie Mae and Freddie Mac. And that would bring down the interest rates. So if you've got a jumbo loan, you might want to wait to see what happens with the stimulus package.

Now, I need to make a caveat here. That $730,000 is a maximum, so depending on where you live in the country, it may not be as much as that. But certainly for people with large home loans this is a very important part of the package that you want to pay attention to.

CHADWICK: Michelle Singletary, our regular voice on personal finance. And she writes the nationally syndicated column The Color of Money. To hear more from Michelle, you can find her NPR podcast at our Web site. The address, - all one word.

BRAND: And if you have a financial question for Michelle, click on the Contact Us link found at the top of every page.

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