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Jumbo Mortgage Rates Sink: Time to Refinance?

The average rate on a "jumbo" mortgage -- a loan of more than $729,750 -- has fallen nearly a point and a half in a year, according to an article by Jessica Silver Greenberg in The Wall Street Journal. So it's no surprise that the average 5.48 percent rate is prompting a wave of refinancings. According to the Mortgage Bankers Association, applications to refinance are now at a 13-month high.

So should you refinance?

The old rule that rates need to drop by two points seems to be have been thrown out the window, but I'd say you still want to make sure rates have dropped by at least a point since you got your original loan. (Refinancings aren't free, after all). Also make sure that:

  • Your credit score is solid. My colleague Linda Stern wrote today that 1 in 4 Americans now have a credit score under 600. Jumbo refis are going to be easiest to get if your score is at least 700. If you're thinking of refinancing, ask your mortgage broker or banker what your score is; they will generally do a check at low or even no cost.
  • You can stomach the appraisal process. Your property may have declined in value from 10 to 50 percent in the past two years and an appraisal may reflect that, affecting your ability to refinance. What's more, out-of-town appraisers may not be able to discern fine points of value. Before you jump into a refi, read my column "Five Tips to Save You from Appraisal Hell."
  • You plan to stay put for a while. You need to be able to amortize the refinancing costs over the life of your loan. My husband and I have an adjustable rate mortgage on our co-op and it might be worth it, for our peace of mind, to transition into a fixed-rate mortgage. But we'd have to stay in this apartment at least three more years to amortize the refinancing overhead -- and we're not sure that's the game plan. Before you refi, check and see when you'll "break even" to cover your refinancing costs. Then, make sure you're confident about staying in your current home until then.
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