One source that has maintained mortgage rate data weekly for more than 20 years, is seeing rates this past week approaching the very low end. The benchmark 30 year fixed interest rate dropped 16 basis points to 5.19%. A basis point is one one/hundredth of a percentage point. The current rate is within a half dozen basis points of their low in this 24 year survey of mortgage lenders. One year ago, it was 6.39%, and 5.32% a month ago. 15 year and ARM rates are correspondingly low, and there is bound to be a great deal of interest in refinancing current mortgages. After all, if you're paying on a mortgage of 8%, a very common rate in the 90s, this can put a lot of money back into your pocket every month. The only problem is that, as rates are dropping, requirements for qualifying are getting tougher. While Fannie Mae and Freddie Mac have been gradually tightening standards for a couple of years, in December there will be new guidelines that will make it a bit tougher for those with other consumer debt. Called total debt ratio, total expense ratio, or back-end debt ratio, the allowed percentage of debt to total income will be changing. To calculate the total debt ratio, the lender totals the borrower's monthly debt payments -- mortgage, home equity loan, car loan, student loans, credit card payments, etc (all minimum payments that appear on your credit report). Then the lender divides that total by the monthly before-tax income. Less debt will be allowed in relation to income under the new rules. This will take more homeowners and buyers out of the market for refinancing due to their increased credit card and other consumer debt.
I recommend to start paying debt down now and don't accrue any more. This will not only improve your debt to income ratio, but your credit score as well. Contact me and we can discuss the options out there for improving credit scores.
Casey Moseman, CMPS