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How to refinance when mortgage rates are stable

After a sharp rise, mortgage rates leveled off beginning in mid-July. Stable mortgage rates may seem to eliminate refinancing opportunities, but in fact there are a number of refinancing strategies which present themselves even though rates have flattened out.

The waiting game

For many homeowners, stable mortgage rates buy them some time to wait out some common obstacles to refinancing. Here's what these homeowners may want to accomplish before rates start to rise again:

The recovery of home prices. According to the S&P/Case-Shiller Home Price Indices, average housing values nationwide have now risen for 16 straight months, restoring them to levels last seen in late 2008. With each uptick in home prices, more and more mortgage loans come out from under water and become eligible for refinancing.

Build equity to today's standards. Even homeowners who did not suffer a drop in property value may find that if they were able to get a mortgage with little money down a few years ago, such loans are hard to come by today. This can mean making payments for long enough to get equity up to 20 percent before the loan can be refinanced.

Repair credit. Underwriting standards are tight these days, so homeowners who have had a hiccup in their credit histories may have to re-establish good credit before they can refinance.

Playing the spread

Since early May, the spread between 30-year and 15-year mortgage rates has widened from 79 to 96 basis points. This gives consumers an opportunity to lessen the impact of rising mortgage rates. Specifically, refinancing from a 30-year to a 15-year mortgage may still represent a lower-rate opportunity to homeowners who can afford the higher monthly payments that may come with a shorter loan.

Homeowners who find an opportunity to refinance in this environment should not hesitate. Stability should never be taken for granted in the mortgage market.

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