Q: Bob, are there any easy ways to save more when you refinance. We (like many others) are having a very difficult time in making our mortgage payments. My wife got laid off and with my salary alone in this market- wow! We have read there are some easy ways to save more when you refinance. Any comment?
Dave & Carla
A: Dave, there are a lot of ways to do a lot of things. I will give you my opinion coming from several professionals. If they work great, if you find they don't fit into your reasoning- ask around?
Homeowners will re-finance over 3 trillion in mortgages this year (if they can, credit scores, etc.) a big increase from a few years ago, according to the Mortgage Bankers Association. In the rush to save, many will make costly mistakes. This is how you can get more out of financing:
Try to reduce your rate without refinancing. Ask your current lender for a loan modification. It simply lowers the interest rate on your current mortgage. Modifications cost only a few hundred dollars. Tell your lender, "I would rather do a loan modification with you than refinance with one of your competitors."
IMPORTANT: Your mortgage may have been sold on the secondary market to another bank or to the refinance giant (who are in trouble also?) Fannie Mae. If so, ask the new owner.
MAKE SURE THE SAVINGS ARE FOR REAL. Just because rates are at a 40-plus-year low and your broker says refinancing is a great idea doesn't mean it is worth the effort. Don't refinance unless YOU WILL SAVE ON INTEREST COSTS. Home owners often focus on the lower monthly payments but forget that the new mortgage is likely to extend the term of the loan.
EXAMPLE: If you have 10 years left on your original 30-year mortgage, refinancing to a 30-year loan will lower your monthly payments-stretching them over an extra 20 years and probably costing more in interest.
NOTE: With today's low rates, you may be able to refinance a 20-year mortgage to a shorter term, say, 15 years, with almost the same monthly payment you have now.
Use the programs atwww.decisionaide.comwww.bankrate.com/brm/calc_vml/refi/refi.asp or www.decisionaide.com to calculate the interest of a new loan versus the old.
YOU WILL OWN THE HOUSE LONG ENOUGH TO RECOVER YOUR UP-FRONT COSTS. Closing costs to refinance single-family homes range from $2,000 and up (based on the National average for a single-family home based on a survey by Bankrate.com). Divide the cost by the amount you will save each month. The result is the number of months you must remain in your home before you start to benefit from refinancing
EXAMPLE: If you pay $2,400 in closing costs and save $150 a month by refinancing, you will break even in16 months.
If you lock in a rate, do so for at least 45days. If you think (they will have to eventually??) interest rates might rise before you close, it pays to lock in a rate.
Thirty-day lock-ins, which many banks offer for free, may not give you adequate time to close. The refinancing means that lenders (in this foreclosure market-yes) that lenders, attorneys, and appraisers are swamped. You probably won't be able to speed things up even if you provide your documents quickly.
Most lenders charge a slightly higher interest rate if you lock it in for 45-60 days- 0.125 and up. All of this depends on your situation with your institution?
Pay attention to when your loch-in rate expires. Most lenders start the clock when you apply- even by phone- not when your loan is approved.
AVOID "NO-FEE" REFINANCINGS AND OTHER COME-ONS. Some lenders let you refinance without closing costs. PROBLEM: The savings are more than off set by an interest rate that is often one full percentage point higher than what you could get elsewhere.
Lenders may also advertise ultra-low interest rates on the internet or in the newspapers. When you research further, you find out these rates aren't available in your area.
NEGOTIATE CLOSING COSTS. A mortgage lender must provide you with a good faith estimate of closing costs. These can vary by hundreds, even thousands, of dollars, depending on the lender. Few people realize that they can save by negotiating fees. Bankrate.com tracks average closing fees, such as those based on a $125,000 loan-www.bankrate.com/brm/ news/mtg/20010621b.asp. Each lender may be different. Next week fees that are NEGOTIABLE & NON-NEGOTIABLE.
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty, Inc.
4040 Del Prado Blvd., Cape Coral, FL 239-540-6659 Office