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Rates well under 6% for a 30-year fixed mortgage have many homeowners racing to their lenders -- none faster than homeowners whose adjustable rates reset soon. The Mortgage Bankers Association reported in mid January that refinance applications were up 92% since the beginning of November.
The better your credit score and the more equity you have in your home, the better the deal you will get. Most lenders won't make loans equal to more than 90% to 95% of the home's value except to borrowers with the very best credit scores -- say, 720 or above.
Adjustable-rate mortgage borrowers are also getting some relief. Last summer, borrowers with ARMs could have expected their rates to reset to 7% or 7.25%; ARMs tied to one-year Treasury notes reset now at 5.25%. ARMs tied to the London Interbank Offered Rate (LIBOR) reset at 5.6%.
If you have a jumbo loan (more than $417,000), the news is getting better. Jumbo lenders are slowly returning to the market. And although rates are still 0.9 percentage point higher than those for so-called conforming loans that are guaranteed by Freddie Mac or Fannie Mae, the average 30-year fixed jumbo rate was down to 6.73% recently.
The situation for jumbo-loan borrowers could improve with new legislation that temporarily raises the conforming loan limit to 125% of a metro area's median home price, up to a maximum of $729,750. That would allow borrowers to refinance at lower rates and buyers to re-enter markets, such as California's, where the median home price has fallen 16.5%, to about $475,000.
