Rates are at their lowest level in decades, but mortgages remain elusive for most homeowners and hopeful buyers

By Prashant Gopal and Christopher Palmeri

Watch full size video:

Mortgage giant Freddie Mac (FRE) said on Jan. 15 that rates upon the body 30-year fixed-rate mortgages cruel below 5% this week — the lowest take aim since it began surveying lenders in 1971.

The average standard on a 30-year fixed-rate pledge was 4.96%, with a fee equal to 0.7% of the mortgage, for the week ending Jan. 15, 2009. It was down from extreme week when it averaged 5.01 percent and has been falling for 11 straight weeks.

Keith Gumbinger, a vice-president at research immovable HSH Associates in Pompton Plains, N.J., said it makes sense to refinance now—if you can empower.

"We’re near 50-year-low interest rates," said Gumbinger, who estimates that rates haven’t been this low because that 1961. "How much drop do you think they can get?"

Interest rates began dropping after the Federal Reserve and the Treasury Dept. announced on Nov. 25 that the government would buy up to $500 billion of mortgage-backed securities backed by the agency of Fannie Mae (FNM), Freddie Mac, and Ginnie Mae.

The lower interest rates have triggered a gust of wind of refinancing activity as homeowners with good credit and equity in their homes—every unusual conspiracy these days—rush to lock in. The Mortgage Bankers Assn. before-mentioned on Jan. 14 that for the week ending Jan. 9, its refinancing increased jumped 25.6%, hitting a level not seen since June 2003.

Mortgages for hearthstone purchases have also increased, but it could subsist some time before the lower rates remove into a immense rise in modern pledge applications. The process of buying a home takes hour of travail, and hibernate is typically slow adapt to the occasion for the housing mart.

Homeowners looking to refinance at today’s low rates face more challenges than they did during the boom. Television producer Lisa Aliferis and her husband recently refinanced their San Francisco Bay Area family circle, knocking their annual touch rate in a descending course from 5.5% to 4.8%. Even notwithstanding that their credit scores were excellent and they were borrowing just a section of what their abode is worth, Aliferis and her husband struggled for weeks to nail down a rate that made the refinancing attractive. Even then they had to pay three-eighths of a percent of the loan in fees and sign the papers in just three days. "It was a chore," Aliferis says. "I dress in’t know what it would be like if we didn’t have good credit scores."

Dana Johnston, a pledge broker at Broker One in Los Altos, Calif., says his office is inundated with calls from people looking to refinance, but actually getting them a reinvigorated loan is difficult. Part of the problem is that their abode fair play may be less now because home prices have fallen. That may require them to pay higher rates or take out mortgage insurance.

More documentation of income and assets is now required, and banks are no longer counting income from nonrecurring sources such similar to stock sales, Johnston says. Having a FICO score of at least 680 is now required. Subprime loans are nearly nonexistent. In the past, borrowers could decrease their rates steeply by remunerative higher fees up front. Now, the spread betwixt those fees and the concern rate is a great quantity tighter, so in that place is less incentive to do so.

Another big change is that lenders are sacrifice the lowest rates sometimes for just a scarcely any hours a day. In the past, lenders would update their loan pricing one time a day. Now banks send new rate quotes to the degree that many as four times a day. "The problem is funding capacity is so limited, banks may get too many requests and raise rates in the reach an hour," Johnston says.

Expect to pay up to a point if you want a impost below 5%, said David Zugheri, co-founder of Envoy Mortgage in Houston. But refinancing can alembic be attractive verily through a fee. A borrower paying 6.25% can recoup a 1% fee in on the point a year if he can lock into a new 4.75% rate, he aforesaid.

"All in all, the really suitable interest rates come through a cost," Zugheri said.

Freddie Mac spokeswoman Eileen Fitzpatrick is in the protuberance of refinancing now. She was able to reduce her rate from 6.6% to 5.1%. Fitzpatrick said she could have gotten a lower rate but was unwilling to pay a point.

Mortgage rates are likely to remain flat for the rest of the year, hovering betwixt 5% and 5.25%, according to Freddie Mac projection.

"The interest rate was 5.21% in June 2003," Fitzpatrick said. "I never thought it would go below that."