Honey, I Shrunk the Mortgage - mortgage refinancing

Black Enterprise, Feb, 1999 by Lynnette Khalfani

4. Start with your present bank first, then check out a range of lenders. Potential home loan sources include Fannie Mae and FHA-backed lenders, mortgage brokers, commercial banks, S&Ls, private lenders and others. Although the people we interviewed all used new financial institutions to get refinanced, in general it's less complicated to go with the same lender.

Why? The process can be faster and cheaper because your current lender may forego, for instance, a credit check or a new appraisal of the property because they've already checked that information. Also important: your banker will probably be more flexible and willing to negotiate terms and rates if he knows he may lose your business to a competitor.

5. Finally, shop around and compare costs--don't just go with the one bank that offers the lowest interest rate. Remember: a low rate is meaningless if a host of other fees offset the financial benefit that a lower rate offers.

Fannie Mae spokesman David Thompson offers this advice: "We tell people to shop around so you get the best rate, along With the best overall terms." And, he adds, "with refinancing being as hot as it is right now, it's really a buyer's market out there."

"We did a lot of research for our new mortgage," says Cheryl Brown "and it really paid off."

Should You Refinance Your Home

Should you or shouldn't you refinance your mortgage? That's what this simple to use worksheet will help you determine using the following formula:

1. Current Monthly Mortgage Payment            $--

2. New Monthly Mortgage Payment                $--

3. Monthly Savings                             $--

4. Total Refinancing Costs                     $--
(Don't forget to include everything in your costs, including
points, legal fees, credit check, inspections, etc.)

5. Break-even Point (in months)                 --
(Divide Line 4 by Line 3. This is how many months it will take to
recoup refinancing costs)

6. Future Time In Home (in months)              --
(Example: If you plan to live in your home for three more years,
enter 36 months)

Solution: If Line 5 is larger than Line 6, it's probably not worth
it for you to refinance. However, if Line 6 is larger than Line 5,
you should seriously consider refinancing your home mortgage.

7. Total Savings (Loss) to Refinancing         $--

EXAMPLE

Using the worksheet, here is an example of what a homeowner would save if he refinanced:

Scenario: A homeowner is now paying a mortgage of $1,200 per month. If he refinanced, the new mortgage payment would be $1,000 monthly, for a savings of $200 each month. His refinancing charges would come to $1,800. That means it would lake nine months before the homeowner would break even. Since this individual plans to live in the home for at least three more years, subtract the lime it takes to break even from the anticipated slay and this homeowner could save $5,400--which makes refinancing a very attractive option. (The $5,400 savings = $200 a month in savings x 27 months [the length of lime in the home after the break-even point]).