September 10, 2008

BIRMINGHAM, Ala. - The nation's home loan interest rates fell nearly 0.5 percent in the two days after Sunday's announced federal government takeover of mortgage giants Fannie Mae and Freddie Mac. 

The rate drop should make loans more accessible and affordable to buyers looking to purchase new homes, according to UAB Professor of Business Lary Cowart, chairman of the Department of Finance, Economics and Quantitative Methods.

But Cowart says what is good for home buyers does not necessary benefit home owners looking for lower monthly mortgage payments.

"If you didn't consider refinancing your home mortgage last Friday, you wouldn't want to do it today," Cowart said.

The rule of thumb, according to Cowart, is to refinance your home loan only after a 2 percent drop in interest rates.  So while refinancing under this week's rate drop could save a home owner $40 on a monthly payment for a $100,000 loan, the fees related to refinancing all but wipe out that savings.

"The rate drop could save you money on paper but you will not make any money on a refinance right now, because the costs and fees related to it," Cowart said.