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Q&A: Can I get a cheaper interest rate?

For the inside home spread of the Nov.

For the inside home spread of the Nov. 5, 2010 - Home section about the new rules of pricing a home. House, Real Estate, Residential Structure, Currency, Balance, foreclosure, Wealth, Finance, Weight Scale, Home Finances (iStock) Credit: iStock

I bought a house in March and got a 30-year fixed-rate mortgage at 4.85 percent. I put 20 percent down and owe $202,000. When we bought our home, my credit score was in the 840s and my partner's was just below that. Can we get a cheaper rate to refinance?

It's amazing to see how far interest rates have fallen in the past six months. When you bought your property, you probably thought that getting a long-term mortgage for less than 5 percent was a great deal -- and it was.

But in October, 30-year mortgage rates fell to less than 4 percent for the first time in history. While these low interest rates are a reflection of our troubled economy (and the high unemployment rate that goes along with it), some folks are able to take advantage.

You have a couple of options: You can shop around for a cheaper 30-year loan. But a better move might be to look for a great 15-year mortgage deal, if you can handle the higher monthly payments.

For homeowners with great credit, at least 20 percent equity in the property and enough cash on hand to satisfy the lender, 15-year fixed-rate mortgages were being offered around 3.25 percent (or lower). This would be an excellent long-term rate that will allow you to pay virtually no interest and get your home paid off in 15 years. Most of what you pay would be principal, not interest.

If you can swing it, you might even look at a 10-year loan. These were currently priced around 3 percent or can be had for even a little less. I'd stay away from the variable rate mortgages. Once the economy improves, these mortgage rates will be gone forever. Take advantage now.

I'd start shopping around with local lenders as well as the big banks. You should plan on speaking with loan officers at four or five different types of companies: megabanks, small regional or local banks, credit unions, local mortgage brokers, and online lenders.

Each of these companies offers something different, and until you compare their loan programs on an apples-to-apples basis, you won't be able to know which one is best for you.

Ilyce R. Glink's latest book is "Buy, Close, Move In!" Samuel J. Tamkin is a Chicago-based real estate attorney. Distributed by Tribune Media Services, Inc.

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