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Kip Tips

Time to Snag a Low Mortgage Rate

Refinancing now -- if you can -- may help you save a bundle.

If you've been thinking about refinancing your mortgage, now is the time to act. The 30-year fixed-rate mortgage is at a 25-year low of 4.35%, according to Bankrate.com.

Refinancing is a great way to put more cash back into your budget. My husband and I are in the process of refinancing our mortgage, which will lower our monthly payment by $400 because our new rate will be about 2 percentage points lower than our current one. However, if you have a fixed rate that is only slightly higher than current rates, refinancing might not make sense for you.

Remember, you have to pay closing costs when you refinance. If you don't plan to stay in your home much longer, you might not recoup the cost of refinancing before you sell. To figure out the number of months it will take to break even, divide the amount of estimated closing costs (usually 3% to 6% of the mortgage) by the amount of monthly savings you expect. You also can use our Am I Better Off Refinancing? calculator for help.

If you want to refinance, you also need to consider these things:

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-- To get the best rate, your credit score must exceed 720. (You can check your score at myFICO, which now is offering free scores when you sign up for a trial membership in Score Watch. You must cancel your membership in 10 days if you want to avoid being charged $12.95 each month.)

-- Your debt needs to be under control. To get a mortgage or refinance, your monthly housing expenses shouldn't exceed 28% of your gross monthly income, and your total debt shouldn't top 36% of gross income (but lenders stretch it to 45% in some cases).

For more information about what about you need to get a loan and how to get the lowest rate, see What It Takes to Get a Mortgage.

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