Time to think about a mortgage refi -- if you’ve got equity

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With mortgage rates nearing their lowest levels in a generation, homeowners hoping to refinance should already be working the numbers to see whether a new loan will work for them, says Keith Gumbinger, vice president of mortgage research firm HSH Associates in Butler, N.J.

The average rate on 30-year conforming mortgages tracked by HSH was 5.30% today, down from 5.57% a week ago.

Some mortgage brokers are quoting rates below 5%.

‘Borrowers who are at 6% or above should at least be considering’ refinancing, Gumbinger said.

The Federal Reserve slashed short-term interest rates today and said it would continue to try to pull down longer-term interest rates using new tricks, such as by buying mortgage-backed bonds.

Since the Fed announced its mortgage-bond purchase program the week of Nov. 24, the average 30-year loan rate nationwide as tracked by loan-finance giant Freddie Mac has dropped more than half a percentage point, from 6.04% to 5.47% as of last week.

With mortgage bond yields diving again today, the Freddie Mac rate could soon near its record low of 5.21% reached in mid-2003.

Jeff Lazerson, a Laguna Niguel mortgage broker, said he had conforming loans as low as 4.625%, plus one ‘point’ in upfront fees. One point is 1% of the mortgage amount. Conforming loans with no points could be had for 5.125%, he said.

Not surprisingly, there are two big potential hitches for many homeowners hoping to refi: their creditworthiness and the amount of equity in their home.

Lenders may want to see a FICO credit score of at least 720, and at least 20% equity, Gumbinger said.

With many Californians underwater on their mortgages, the equity issue is a deal killer for about 70% of the people calling for refis, Lazerson said.

Still, he said, he has been swamped with business in the last two weeks from homeowners who do have equity.

Gumbinger advises shopping around with lenders to get the refi process started, even if you aren’t yet sure a refi is right for you, and even if you think rates might drop more substantially in the next few months because of Fed efforts or other government steps to help the housing market.

Given the drastic shrinkage of the mortgage business over the last two years, ‘The industry is ill-prepared to handle a crush of business,’ Gumbinger said. That could mean an advantage for people who get into the pipeline early.

-- Tom Petruno