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Is now the time to buy or refinance?

Record low mortgage rates and a federal tax credit make this a good time to buy for some people.

By Teresa Mears Dec 3, 2009 3:22PM

If you can afford it, there has never been a better time to buy a house, especially if you qualify for the homebuyer tax credit of up to $8,000. But should you buy now?

 

Mortgage rates hit 4.71% for a 30-year loan this week, the lowest since Freddie Mac began keeping track in 1971. Home prices are down nationwide, more than 50% in some former boom areas, such as parts of Florida and California.

 

Waiting for prices to drop further could be a false economy. A $200,000 loan at 6% and $180,000 loan at 5% cost about the same. (Run the numbers yourself.)

 

The tax credit for first-time homebuyers has been extended to April 30, and a similar credit of up to $6,500 is available to some current homeowners who want to move.

 

For people in the right personal and financial circumstances, it’s an excellent time to buy a home. But, just because this is a good time for some people to buy, it doesn’t necessarily mean it’s a good time for you, warns MSN Money columnist Liz Pulliam Weston, who outlines three bad reasons to buy a home.

 

This could also be a good time to refinance, if you have an adjustable rate mortgage or are paying a significantly higher rate. Because closing costs vary widely across the county, it’s difficult to come up with a rule of thumb about how much you need to improve your rate to make refinancing worthwhile. This Bankrate.com refinancing calculator can help you do the math. MSN Money columnist MP Dunleavy shared her calculations when she considered whether to refinance from a 30-year to a 15-year mortgage to save interest costs and pay off her home loan sooner.

Even if you can get a lower rate, it doesn’t always make sense to refinance, reminds Liz Weston, especially if you don’t plan to stay in the home long or if your credit has deteriorated.

 

Many homeowners who would benefit most from refinancing can’t, either because their incomes have declined or because their homes are worth significantly less than they owe. The government is providing some help through its Making Home Affordable program to people who owe as much as 125% of their home’s current value.

 

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