Mortgage rates are edging lower after the government announced a plan to purchase mortgage-backed securities. Homeowners are using the trend to save money on their monthly mortgage payments.

In 1998, long before the housing crisis, former Vice President Al Gore said, "Americans are resourceful people." Love him or hate him, you have to hope Gore was right-because for many, resourcefulness is what it will take to manage through this economic cycle.

Many American households are finding added financial security from an unlikely source: their homes. Even as the housing crisis grinds on and saps wealth from personal balance sheets, some homeowners are still able to tap the benefits of owning property. The trend is largely related to a big drop in mortgage rates, which was preceded by the Federal Reserve's announcement that it would buy $600 billion of mortgage-backed securities.

Lower mortgage rates create monthly savings

According to Freddie Mac's weekly mortgage rates data, the average rate on a 30-year fixed-rate mortgage has declined more than 1.3 points since October-from 6.46 percent for the week ending October 30, to 5.14 percent for the week ending December 24. A decline of that magnitude equates to savings of about $84 per month, or $1,008 per year for every $100,000 financed. The 15-year rates have shown a similar trend, dropping from 6.19 to 4.91 percent.

Monthly savings generated by a lower mortgage payment should be measured in light of the upfront closing costs associated with the mortgage refinance. Homeowners who can breakeven on the closing costs in two or three years may, however, end up saving tens of thousands of dollars in total interest over the life of the loan.

At a time when layoff worries and economic uncertainty are running high, homeowners are thrilled with the idea of saving money by lowering their mortgage payments. The interesting thing about this refinancing boom is that homeowners generally aren't looking to spend the extra money; they're more likely to tuck it away in an emergency fund.

Mortgage refinance requirements still tight

While many homeowners are interested in getting a piece of the mortgage refinance action, not all are qualifying. Declining housing values and tighter lending requirements make it difficult for those who purchased their homes when real estate was peaking. Lenders aren't budging on their conservatism either; borrowers will need to have 20 percent home equity along with good credit and a stable job history.

Homeowners who want to explore the possibility of a mortgage refinance should begin by getting a free online appraisal. If the online appraisal returns a home value that equates to at least 20 percent home equity, there's a chance the mortgage refinance can be done. The lender will, of course, require a full loan application and professional appraisal before offering a loan approval.

In the midst of a housing crisis, leveraging the home's borrowing power to save money is one way to get resourceful. It's just too bad this savings plan isn't available to everyone.

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Published on January 21, 2009