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Why You Need to Refinance Your Mortgage Immediately

NEW YORK (TheStreet) -- For years, the mortgage industry has been living off refinancings, which have often accounted for more than 70% of mortgage applications. Now the refi rage is fading, as rising rates make it harder to save money by replacing an old loan with a new one.

But homeowners should not give up too quickly. Saving a little isn't as good as saving a lot, but better than saving nothing. Those who can still refinance to trim their monthly payments would be wise to start hunting for a deal now, as the remaining opportunities will slip away if rates keep going up.

"The refinance share of mortgage activity decreased to 64% of total applications, the lowest level since May 2011, from 67% the previous week," the Mortgage Bankers Association reported last week.

"Mortgage rates reached their highest point in two years," said the MBA's vice president of research and economics, Mike Fratantoni. "At these rates, many fewer homeowners have an incentive to refinance, and refinance application volume declined more than 15%. With this decline in volume, the refinance share dropped to its lowest level in more than two years."

The average 30-year fixed-rate mortgage now charges about 4.5%, according to the BankingMyWay.com survey. The rate was 3.6% in early May.

Few experts think the rate will fall significantly in the months ahead, as markets anticipate the rising interest rates that typically accompany strengthening economies. So there's little reason to postpone a refinancing. After all, today's rates are still low by historical standards. The 30-year fixed loan often goes for 6% or 7%, or more.

To make a refinancing pay, the homeowner must keep the new loan long enough for its lower monthly payment to offset the refinancing fees. That obviously means that a small reduction in mortgage rate takes longer to pay off than a large one, one reason the recent jump in rates has reduced the number of refinancing applications.

But a number of lenders offer mortgages with very low fees or none at all, according to HSH Associates, the mortgage-data firm. That can make a refinancing pay off fairly fast even if the rate reduction is small.

But borrowers should assess these deals carefully, as the great fee deal may be offset by a higher loan rate. Use the Refinance Breakeven Calculator to figure which loan would provide the largest savings over the period you expect to have the mortgage.

Some lenders have eased their standards for approving applicants, HSH adds. If you worried that a less-than-perfect credit history would keep you from getting a new loan, your chances may now be better than you think.

Another factor making loans easier to get is the recent rise in home values. In recent years, most lenders have required borrowers to have at least 20% equity, allowing them to borrow only 80% of the home's value. When home values were falling, many who had started with plenty of equity found they no longer met this minimum. Now many of them do.

And some lenders will accept applicants with only 10% equity or less, if they have good credit histories and enough dependable income.

So if you are paying 5%,6% or 7% -- typical rates in the latter years of the past decade -- it could pay to look into a refinancing today. It's not likely the deals will get much better.

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