March 3, 2008 issue

By Linda Stern 

If you missed your chance five years ago, this might be a good time to refinance your home mortgage. The credit crunch has paradoxically produced the lowest interest rates in years. Rates on 30-year loans are below 6 percent, and 15-year loans are skirting the 5 percent level.

A refi now should appeal to three groups in particular: those who have dangerous interest-only or negative-amortization mortgages, those whose credit scores have improved significantly since they got the loans they have now and those whose variable loans reset last summer to 7 percent or higher.

Folks who have big loans— so-called jumbo mortgages of more than $417,000—should wait and see. The federal stimulus package is supposed to help rates on those loans, but that effect may not kick in until spring.

To refi circa 2008, you have to play the game a bit differently. The easy money has dried up, so borrowers have to have a decent credit score (say, 680 or better) and at least 5 to 10 percent equity in their home so that they’re not trying to borrow its total value. As to whether it’s worth refinancing, there’s a new rule of thumb for that, too: look at loans if you can save 1 percentage point on your interest rate and expect to stay put for five years or more. By then, you’ll have saved enough to make the new mortgage worthwhile.