Record low mortgage rates: What to do now

(MoneyWatch) Mortgage interest rates have hit record lows. That's according to the most recent Freddie Mac survey of conforming mortgage rates released this week.

Rates on the 30-year fixed-rate mortgage averaged 3.84%, down from 3.88% last week and 4.71% a year ago. Fifteen-year fixed-rate mortgages averaged 3.07%, down from 3.89% a year ago and rates on 5-year Treasury-indexed adjustable-rate mortgages averaged 2.85%, which is down from 3.47% a year ago. You can get a survey and track mortgage rates at HSH.com.

Homebuyers who have applied for a mortgage should probably lock in their mortgage rate now. Homeowners who have a mortgage should consider their refinancing options, while mortgage rates are this low. Here are a few things for refinancers to consider:

Folks who can reduce their mortgage interest rate by at least one percent should look into their refinancing options. Also, if you have an adjustable rate mortgage, you should still think about this opportunity to lock in the certainty of a low fixed rate, even if your current adjustable rate is lower than the fixed rate.

If the lower payment of your new mortgage recoups the closing costs in 24 months or less and you plan to keep the home for at least that long, then refinancing can be worth it. If you refinanced in the last year or two, just be sure to consider any closing costs from your last refinance that have not yet been recovered.

Homeowners with larger mortgages should definitely look at refinancing again, even if they refinanced in the last year or two. The monthly savings from lower interest rates for larger mortgages are greater and can recover the costs of a refinancing more quickly.

Today's mortgage refinancing reality is that for folks who are unable to prove their income and assets with verifiable documentation will struggle to find any reasonable refinancing options. Expect to provide full documentation of income and assets with your mortgage application. This includes pay statements from the past three pay periods, three months of bank statements and tax returns for the past two years. Requirements may also include having cash in reserve equal to six to 12 months of mortgage, insurance and tax payments. In most cases, 70 percent of retirement account balances count towards this requirement.

If you can provide documentation of the income and assets required, your credit score is 700 or higher, have no late payments, your mortgage loan amount is less than 80 percent of the homes appraised value, and the loan is at the conforming limit (not more than $417,000 and up to $625,500 in designated High Cost Areas) then you'll have plenty of lenders offering attractive refinancing options.

Some borrowers will not be able to refinance: For folks who are working but are making a lot less than they were, or who are unemployed, refinancing is generally not an available option.

Don't wait to catch the bottom in mortgage rates: If your financial condition unexpectedly takes a turn for the worse (you lose your job, etc) while you wait, you may not qualify to refinance and could miss out on what could be the lowest mortgage interest rates you'll ever see.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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