Mortgage Rates Hit 37-Year Low

• You have equity in your house (you don’t owe more than it’s currently worth).
• You have great credit.
• You plan to stay in your house a while (long enough to recoup the $2,500-$5,000 you will pay in re-financing costs by lowering your payments). Usually it takes four or five years depending on your payment.
• The new rate is at least one percentage point lower than your old rate.

• Make extra payments on the principal of your loan to pay it off early and build equity.
• Save the money to build up a security nest-egg in case you lose your job.
• Pay off higher interest loans, like credit cards or car notes.

A lot of people are rushing to refinance now. There has been a surge of refinancing that has been so large mortgage and title insurance companies have had to hire help to process the applications.  That would be a good place to go find a story. While everybody else is singing the blues these days, these folks are very busy. But how often are they telling people not to bother applying?

The Jacksonville (Fla.) Times-Union points out that just because there are tons of new loan applications flying around does not mean the banks will actually approve the loans:

JPMorgan Chase spokeswoman Mary Kay Bean said applications began to increase when rates fell below 6 percent, which “seemed to be a psychological trigger for borrowers.”

Bean said the company has seen a three-fold increase in refinance applications since early November.

But she added that “we don’t know what approval rates will be” because lower home valuations have reduced homeowners’ equity and because some homeowners may have lower credit scores now than when they secured their first mortgage.

“Clearly not all borrowers that have a rate incentive will be able to refinance because either the value of their home has fallen below the value of their outstanding mortgage or their credit is impaired. But we still expect enough borrowers will be able to refinance to meaningfully change expected originations for the next year,” Barclays Capital analyst Bruce Harting said this week in a research report on Jacksonville-based Fidelity National Financial Inc.

Thanks to a 30 percent drop in home values since 2006, local bankers and mortgage brokers are preaching the virtues of home refinancing to a smaller choir of homeowners than they were just two years ago.

Borrowers with stellar credit and hefty home equity should find savings galore, but for the tens of thousands of homeowners who bought in the boom market of 2004-2007, refinancing could prove costly and pointless.

“I’d probably tell more people in this market not to refinance,” said Kerri McDougald, broker-owner with Brandon’s All Mortgage Group. “Most people right now are upside-down on their mortgages or the cost of refinancing is not effective for them.”

To be sure, if you’ve owned your house at least five years, accumulated equity and won’t move in the next year or two, you can save thousands of dollars a year.