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Good Question: Should You Refinance Your Home?

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MINNEAPOLIS (WCCO) – One generation tells stories about the days mortgage rates were at 15 percent in the early 1980s.

“We’ll be telling stories about these interest rates in 20-30 years, no question,” said mortgage banker Alex Stenback.

Freddie Mac said Thursday that the rate on the 30-year fixed mortgage declined to 3.49 percent this week, the lowest mortgage rate in the 60 years long-term mortgages have been around.

It’s down from 3.53 percent last week, and that’s making the phones ring non-stop at Residential Mortgage Group, a division of Alerus Mortgage in Minnetonka.

Are people really getting 3.49 percent?

“They sure are,” Stenback said. “In fact, it’s a weekly average, so people today are getting a little better than that.”

Home prices are starting to rise in Minnesota and interest rates keep falling to new lows. Should you explore refinancing your home?

There are many factors, and lots of paperwork, but three questions can get you started, according to Stenback.

• What’s your current interest rate?

If you’re paying more than 4.25 percent, it may be worth paying those closing costs, Stenback said.

“As a general rule, you want to break even in 2 to 3 years, it depends on how long you want to stay in your home,” he said.

• What’s your home worth?

“That is going to be a critical component. It tells you whether you can refinance at all,” Stenback said.

Home values have dropped big time and some of us owe more than our home is worth. To refinance, the perfect scenario is having your loan be no more than 80 percent of the value of home.

“The biggest obstacle is still home equity, the value of the property,” Stenback said.

Home appraisers are working long hours trying to keep up with the demand for refinances.

“Appraisals aren’t free. You can be put in a situation where you have to pay $400 for an appraisal to find out if you can refinance or at what rate,” he said.

Even if you’re underwater, there’s a federal program called the Home Affordable Refinance Program that might make refinancing an option.

• What’s your credit score?

Mortgage underwriters are requiring good credit and proof of the ability to make the loan payments.

“You want to see credit scores in the middle 600s before you can seriously look at refinance,” Stenback said. But to get the premium rates you usually have to have a FICO score higher than 740.

If you don’t have proof of income, so if you’re self-employed or had a period of unemployment, it can be a challenge to get approved, Stenback said.

Still, he advises that “it’s always worth checking when rates get this low.”

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