Rates are falling. Time to refi?

"We are seeing a big spike in loan calls," says Jeff Lazerson, president of MortgageGrader.com, an online lender. "Some formerly prime borrowers are now having credit scores struggles. And the other big issue is lack of equity. So far, of every 10 potential borrowers we talk with, there are three that we can actually assist."

There's an old saying that if you have money and don't need a loan, the bank is willing to lend to you; and if you don't have money and need a loan, the bank will turn you away. A parallel situation exists in today's refinance market. Of the people who can qualify for a refinance, most of them probably don't need to.

Who can refinance

Today, there are two groups of qualified borrowers who should look at refinancing:

• those who have fixed-rate mortgages above 6 percent;
• those who have adjustable-rate mortgages and want to flee to the security of a fixed-rate loan. Most of the people in this group have hybrid ARMs with low introductory interest rates. If they refinance into fixed-rate loans at, say, 5.75 percent, their interest rates and monthly payments will go up. But with fixed-rate loans, they don't have to worry about future rate increases, whereas with adjustable-rate mortgages, the threat of future rate increases is always present.

In today's economic climate, people want the secure feeling of having a stable mortgage payment that comes with a fixed-rate loan, Lazerson says.

"The great news is that refinance clients are receiving significant emotional relief," he says, "getting out from under adjustable loans and high-rate seconds as well as lower interest rates and payments."