Record-low rates below 4 percent could lure homeowners, but few can or will take advantage

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WASHINGTON — Never have average rates on long-term fixed mortgages been as low as they are now: 3.91 percent for a 30-year home loan and 3.21 for a 15-year loan.

The new lows mark the eighth consecutive week the average on the 30-year loan has hovered near 4 percent.

Those rates make now a tantalizing time to refinance. And, with home prices having sunk in most areas of the country, many would-be buyers are tempted, too.

Yet the pace of refinancing and home buying has been mostly unchanged over the past year. That’s mainly because so many Americans lack the home equity, credit scores or cash to refinance or buy. Many who do qualify to have already done so.

Here’s a look at whether and why it makes sense to refinance or buy.

WHY NOW IS A PRIME OPPORTUNITY: Rates are at record lows. More than 75 percent of homeowners with conventional government-backed mortgages are paying rates above 5 percent. Millions of homeowners, especially those with solid jobs, stable finances and strong credit, have refinanced during 2011. The rate on the 30-year fixed loan has remained below 4.5 percent since July. (In 2008, it topped 6.5 percent.)

WHY MORE PEOPLE AREN’T REFINANCING: In many cases, people whose home values have dropped aren’t eligible. Shrunken home values have reduced the total equity Americans have in their homes to less than 40 percent – the lowest since the Great Depression. As a result, many people lack enough equity to qualify. Or their credit scores aren’t high enough.

Another obstacle: Refin­an­cers typically must pay thousands in closing costs and appraisal fees.

WHY MORE PEOPLE AREN’T BUYING: Many would-be buyers can’t afford the down payment, are out of work, lack enough income or are burdened by debt. Home prices have sunk 31 percent since the housing boom four years ago, leaving many fearful that prices have yet to bottom.

Half of would-be buyers also say they don’t think they’ll ever save enough for the 20 percent down payment now expected by most sellers, according to a survey by the National Foundation for Credit Counseling.

For those looking to buy, banks are also insisting on higher credit scores.

WHAT IS AT STAKE: When people refinance, they pay less interest on their loans. So they end up with more money to spend, save or invest. For those who can qualify, the savings can be significant. If a homeowner with a $200,000 mortgage at 6 percent can refinance down to 4.5 percent, the savings would be $3,000 a year.


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