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Housing downturn makes refinancing more difficult

Lenders less likely to make loans in deflating markets

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Refinance applications jumped during the first week of 2008, according to a recent weekly survey from the Mortgage Bankers Association. The catalyst was lower interest rates on 30-year fixed-rate mortgages that hovered below 6 percent on average at the end of the first week in January, and rates have fallen further since then. During the recent years of record home buying, most buyers opted for adjustable-rate mortgages (ARMs) rather than fixed-rate financing. The most popular mortgage vehicle was the fixed ARM with an interest rate that was initially fixed at a below-market interest rate for three or five years. At the end of this time, the interest rate resets to a new rate, and the loan converts to an ARM with an interest rate and monthly payment that fluctuate over time. A record number of these fixed-ARM mortgages are due for resets this year. It's anticipated that 2008 will be a big year for refinancing. HOUSE HUNTING TIP: Even though you may be counting on interest rates droppi...