Tuesday, January 24, 2012

Refinancing for fun

  Refinancing a home mortgage is one of the most fun things I can think of to do when bored…NOT.  Based on my experience, here’s what I suggest you do if considering engaging in this activity, which offers exciting opportunities to screw  up, frightening roller coaster ride like anticipation and a degree to understand (unless you found a book written at the fifth grade level…for ADULTS, what a concept):

1.               Go to the following web address: http://www.federalreserve.gov/pubs/refinancings/default.htm where you can find basic information on refinancing, mortgage calculators, guidance on how to determine when you will break even and things to look for and guard against…FREE. 

a.               This is a government website, not commercial - so the objective is not to sell you a product, but to edumacate you.

2.               Find your current mortgage papers; note the rate you pay now.  Write it down.

a.               Verify whether or not you have a prepayment penalty.

b.               Check with your current lender to see if they will offer you a good rate.  If you do have a prepayment penalty, ask under what circumstances will they waive it. 

                                                                             i.                    If so, how does that affect costs?  If they waive the penalty but charge you a rate that is higher than you can get elsewhere, is it worth it?

1.               Use a mortgage calculator to determine the best plan.  (See #1.)

3.               Shop for best rates.  Get written Good Faith Estimates from at least three lenders.  You can line up what each is offering, side by side, so you see the differences in costs and rates.

a.               Beware of lenders who do not give you a Good Faith Estimate, it is against the law not to do so.

                                                                             i.                    If they tell you it’s confusing, just say, “I’m not an idiot, ha, ha.”

b.               Just getting a one page estimated expense sheet will not help.  Lenders, be they bankers, brokers, or loan officers, speak in different languages and differ in their terminology.  They will confuse you without trying to do so.

c.                NOTE: the APR is the interest, AFTER the costs are added in; it is different from the interest rate, contrary to what a recent mortgage broker tried to tell me.

4.               If you want to, or if you have savvy friends, ask about their experiences; just beware that you still need to look at your own situation and compare costs.

5.               Don’t let anyone push you, rush you…and try sales techniques geared to make you sign on the bottom line NOW.  The money is there today, tomorrow and next week. Right now (January 2012), the rates are not fluctuating wildly or by much at all.

Refinancing isn’t a good idea if you’ve had your home a long time.  In the later years of paying your mortgage, more of your money is going to the actual home payment and less to interest.  If you refinance at that point, it’s like starting all over again with interest payments.  Also, if your current mortgage has a prepayment penalty, it will take you a longer time to break even on refinancing fees when you look at the costs opposed to the expected monthly sayings.  Finally, if you plan to move in the next few years, you need to calculate whether you will gain back the costs of refinancing before you leave your home and purchase another one.

That’s it in a blurb.  You will survive the tedium.  Just be a good consumer; know your rights and where to go for information that is unbiased.

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