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A loan again - mortgage refinancing

Entrepreneur, July, 1996 by Lorayne Fiorillo

HOME IS WHERE the heart is, and having your own home has long been a basic part of the American dream. With mortgage rates nearing historic lows, now may be the time to refinance your abode . . . or move up to the home of your dreams. But changing streets doesn't have to mean changing your lifestyle. Right now many lenders provide packages that make borrowing easy and refinancing less of a hassle.

* HOME. SWEET HOME

Let's face it: Some people are financing junkies. They move from lender to lender, rate to rate, in search of mortgage nirvana--the lowest possible rate on the perfect loan. All well and good if that's how you like to spend an afternoon (or two or three), but even if refinancing isn't your idea of an Olympic sport, if your objective is to lower your mortgage payments or pay off your loan faster, refinancing can help you reach these goals.

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Experts have varying opinions on when it makes sense to refinance. Edward Dixon, public affairs officer at Citibank in New York City, suggests as a rule that consumers not consider refinancing if there is less than a 2 percent difference between the old and the new mortgage rates. "Closing costs would eat up your potential savings," says Dixon.

Barbie Weiner, mortgage consultant at C.F. Mortgage Services in Charlotte, North Carolina, sees it a bit differently. "If you'll be in the house a long time, it could be worth it." To figure out the number of months it will take to recoup your costs, divide your monthly savings into the total closing costs. For example, if you hold a $100,000, 30-year mortgage at 8 percent, your payments are about $733 per month. If you refinance at 7 percent, your monthly payment would drop to about $665, saving you $68 per month. If your closing costs came to $2,200, it would take 32 months for you to recoup the cost of refinancing. If you plan to stay in your house longer than that, you've made a wise decision.

If your loan is larger or the difference in mortgage rates greater, the savings add up more quickly. But don't plan a visit to your lender just yet: Refinancing costs cut into your savings. Orientation fees (typically 1 percent of the mortgage amount), appraisal costs, attorney's fees, underwriting fees, tax service fees, surveys, discount points, credit reports, application fees, title insurance, document preparation and other miscellaneous fees that vary from state to state can make breaking even a far-off goal. So before you begin compiling the collection of tax returns, bank statements and credit references, you need to be sure you're doing the right thing.

Refinancing involves replacing one mortgage with another. This makes sense for you if as a result you can lower your payments, pay off a loan faster or lower the future risk of paying higher rates. Home mortgages are often a family's largest debt, so picking the right mortgage can affect more than just your cash flow.

* RE FI? HO HUM

Refinancing is time- and effortconsuming, but if you have a conventional 30-year mortgage, low interest rates can provide an opportunity for you to really save money on a house you plan to stay in. One reason to refinance is to cut the time your loan is outstanding. Although you'll have higher monthly payments, in the long run, you could save big, provided you can make the payments. Here's a common example:

If you have a $100,000, 30-year mortgage at 9 percent, your monthly payments are $804. If you stay in the house for the term of the loan, the house will cost you $289,664.

If you refinance and get a shorter, $100,000, 15-year mortgage at 7 3/4 percent, your monthly payments go up to $941. If you stay in the house for the term of the loan, however, the house will cost you $164,429.

The moral of the story? If you can afford the higher payment, you could save $125,235. Heck, with results that good, you could almost buy yourself another house!

* LET'S MAKE A DEAL

You've decided refinancing will save you a bundle in the long term--but now, who ya gonna call? All your friends are talking about how they jsut got the world's best interest rate; newspapers and TV ads are hawking fabulously low rates--with loan applications taken over the phone and approval in just an hour. You can't get your dry cleaning done that fast.

It's tempting to start your search with the lowest advertised rate, but real bargains begin at home . . . with your current lender. "It's not necessarily the interest rate that makes refinancing attractive, but the additional costs that do--or, preferably, don't--go along with it," cautions Jim DeMare, loan officer at Market Street Mortgage Corp. in Charlotte, North Carolina. "A super low rate can take a lot of your equity if it involves high costs that are included in your new loan. If the rate offered by your current lender is attractive, you may save on closing costs, appraisals, title insurance and the like. To make a long story short, it pays to look at home first."

If your current lender can't or won't compete for your business, it's time to enter the refinancing zone. Armed with the right information, you'll be up to the task at hand.

Business Services Industry

A loan again - mortgage refinancing

Entrepreneur, July, 1996 by Lorayne Fiorillo

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