Is it Time to Refinance Again?

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There's nothing more American than a second chance, and you're getting one right now. Interest rates that briefly hit three-decade lows last fall are tumbling anew, giving those who missed out another shot at dream mortgage rates, 0% financing on cars, and single-digit credit cards. Falling rates have a dark side: pitiful interest income on bank deposits and other savings. They could also signal economic malaise. So take advantage of the benefits.

After a final push downward last October, most rates bounced back so quickly that many consumers couldn't seize the moment. Now rates are even lower than they were last autumn, and they may be headed lower still. Lehman Bros., Goldman Sachs and Deutsche Bank all predict that the benchmark short-term federal-funds target rate — at just 1.75% — will go to 1% by the end of the year as Fed Chairman "Sir" Alan Greenspan (soon to be knighted for his role in the global economy) dons armor against the double-dip recession dragon. A quarter-point cut could come this week. A lower fed-funds rate is bad news for savers. Yields on things like money-market funds and short-term bank CDs, already under 2%, would drop further. Meanwhile, long-term rates, which the Fed does not control, could push higher as bond traders anticipate the return of inflation a year or two from now. That's bad news again, for bonds, because their prices fall as yields rise. Ethan Harris, economist at Lehman, expects bond investors to lose money during the next 12 months.

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In case you were napping last fall, here's a list of do-overs:

REFINANCE YOUR HOME. The average 30-year fixed-rate mortgage fell to 6.38% last week, reports mortgage tracker HSH Associates. That's down from 6.59% at the lowest point last fall — a level gone in a blink. This time rates look as if they will stay put for a few months. Consider a home-equity loan to pay off the mortgage; it amounts to a refi with fewer fees. Best bet: a 15-year fixed-rate. If you have a $150,000 balance at 7.5% on a 30-year mortgage, you could switch to a 15-year at 5.5% for an extra $175 a month, saving $157,000 in interest costs. It may make sense to refi one 30-year with another if the rate drops just three-quarters of a point.

REBALANCE YOUR PORTFOLIO. The stock market has gone through its worst 36-month period since France fell to Germany in 1940, reports Bianco Research. Bonds have outperformed. If you haven't made adjustments, bonds have grown into a bigger slice of your portfolio than you intended. Get the allocation back in line: for folks under 50, 70% stocks (some foreign), 20% bonds, 10% cash. It's a great way to catch any turn in the market. "We rebalance four times a year," says Thomas Orecchio of financial advisers Greenbaum & Orecchio.

REINVEST EVERY CHANCE YOU GET. Dollar-cost averaging into a retirement account is most effective when the market is volatile. Investing a set amount at regular intervals ensures that you buy more shares when prices are low. The kicker: extreme price moves like now often signal a market bottom.

RETHINK SHORT-TERM SAVINGS. You pick up an extra point of yield switching from a money-market fund to a short-term bond fund. Best bet: a low-expense fund with securities that mature in two years, like Vanguard Short-Term Treasury and Pimco Low Duration. They carry only minimally more risk than a money-market fund.

REVISIT YOUR CREDIT CARDS. Even nose-bleed rates have come down. Best deal: Pulaski Bank (800-980-2265) offers a Visa that charges annual interest of 5.5%. Pulaski also gives six months at no interest on transferred credit-card balances.

Finally, if your finances are in order, borrow, and buy something. You'll get the lowest rates in half a lifetime.

Contact Dan at his e-mail address,