The return of refinancing

By Linda Stern

WASHINGTON (Reuters) - Refinancing the mortgage isn't the hobby it was in 2003, but with 30-year loans priced under 6 percent, maybe it should be.

"Rates are within spitting distance of their 40-year lows," says Keith Gumbinger of HSH Associates, a mortgage research firm. "For most borrowers, this is still a very good opportunity."

Opportunity, yes. Cakewalk, no. The credit crunch means that even though the money is cheap, it isn't flowing as freely as it did five years ago. It's harder to qualify for a good loan and it may take more work to find the right one.

But that's extra work that's especially worth doing for homeowners who are holding problematic loans.

"First on line should be borrowers who had adjustable mortgages reset last summer into the 7 percent range," says Gumbinger.

Others who should be in the marketplace today are those who bought homes with two-tier mortgages and have higher-rate piggyback loans. And those who took out subprime mortgages at least two years ago but who have been making steady, timely loan payments since then.

Here's how to determine if a refi makes sense for you, and how to line up the best loan.

-- Check your credit score, and your home equity. If you don't have at least 10 percent of your home's value in equity, don't bother. It will be hard to get a loan in this market. If you're serious about refinancing, check your credit report at http://www.annualcreditreport.com. If you have blemishes -- late payments and missed payments, and the like, pay to get a copy of your credit score at myfico.com. If your credit score is below 680, you will have a very hard time finding a decent loan, says Gumbinger. Look into improving your score before you start applying for loans.

-- Decide if the savings are worth it. Here's today's quick rule of thumb: If you're going to be in your house for at least five years, and can save at least one percentage point on your loan rate, a refi might be worthwhile. The longer you're going to be in your home, the less of a rate differential you'll need. But don't rely on rules of thumb: Use a good online calculator to find out what your break-even point will be. Find one at HSH's site, http://www.hsh.com/usnrcalc.html.

-- Big borrowers should think about getting in line. Mortgages of more than $417,000 are considered "jumbo" loans, and are too big to be guaranteed by financial giants Fannie Mae and Freddie Mac. As a result, their rates haven't fallen as fast as the rates on smaller mortgages. But the discrepancy between the cheapest and costliest jumbo loan is significant, so the right lender might make a refi worthwhile, says Gumbinger.

Moreover, Washington's stimulus legislation might help: It would raise the threshold on the Fannie and Freddie backing; some loans now considered jumbo could be refinanced at lower conventional rates. Start lining up your mortgage banker now, and watch that space.

-- Cast a wide net. It is a competitive market, so shop for low-cost loans online at sites like HSH and http://www.bankrate.com. Call your local mortgage banks and credit unions too. Make sure that you get a reasonable good-faith estimate, up front, of how much the lender will charge you for such items as the appraisal, loan processing and the like.

-- Lock it up and don't drag your feet. It's not just the stock market that is volatile right now: Interest rates are rocky, too. The moment the financial community thinks the nation's biggest risk is inflation instead of recession, long-term rates will rocket. And those cheap home loans will be left in the dust.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)