You Can Cut Your Housing Costs - mortgage refinancing - Brief Article

Kiplinger's Personal Finance Magazine, March, 2001 by Elizabeth Razzi

HOME | Falling interest rates are sparking a RUSH TO REFINANCE.

A slowing economy isn't all bad news. For many homeowners it presents the almost irresistible opportunity to refinance--which could save them hundreds of dollars a month. With rates at their lowest point in almost two years, even homeowners who got their loans within the past year are phoning loan officers to lock in new loans at less than 7%.

The unexpected interest-rate cut by the Federal Reserve Board in early January helped drive rates down, and there's a good chance that 30-year fixed-rate mortgages could go below 6.75% if the Fed cuts interest rates further, says Robert Van Order, chief economist for Freddie Mac, a secondary-mortgage market company.

Rates peaked last May at 8.6% for a 30-year fixed-rate loan. Refinancing a $200,000 mortgage at 8.6% to get a new one at 6.9% would save $235 a month. You could have to pay one point (1% of the loan amount) to get that 6.9% rate. A no-points loan at 7.25% would still save $188 a month in this example.

No-points loans are especially attractive when you're refinancing because, unless you're paying for home improvements, the tax law does not allow you to deduct all your points the year you refinance. Instead you must spread the deductions out over the life of the loan.

It usually takes about 30 to 60 days to wrap up a refinancing, according to Dave Warner, a spokesman at the Mortgage Bankers Association of America. Most lenders will lock in your new rate during that period at no additional charge, but be sure to clarify the lock-in period before you apply.

Ask lenders whether they will require a new appraisal. If you're not trying to pull cash out of the deal by refinancing for more than you owe, many lenders won't require a full-blown appraisal, says Warner. They may be able to use computerized databases to confirm your home's value, saving both time and money.