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Terry Savage: 5 things to know about mortgage refinancing

McClatchy-Tribune Information Services

February 9, 2015


Your home is likely the largest investment you will make in your lifetime, and the interest you pay on your home mortgage over the years could more than double the purchase price. Yet a new study by Bankrate.com reveals that just over one-third of borrowers arenít sure what interest rate they are paying on their loan.

What you donít know could be costing you a lot of money. Current mortgage rates now near their historic lows. Bankrateís survey finds average 30-year fixed rate is at 3.80 percent. They note that if you refinance a $200,000 loan from 6 percent down to 3.8 percent, you would save $267 per month in mortgage payments!

So here are five important things to know about refinancing your mortgage:

1. Figure out whether a refinance is worth doing. It pays to refi if you can get a rate that is as little as 0.5 percent to 1.0 percentage point lower than your current rate, depending on the size of your mortgage balance.

2. Consider all costs and fees. The costs and fees for refinancing may be paid by your mortgage banker, but a "no-fee refi" means youíll pay a slightly higher interest rate. Alternatively, the costs can be rolled into the loan balance, or you can pay them separately. One tip: If you pay fees separately, it should not take more than 12 months to make your costs back through a lower monthly payment.

3. Start by knowing the facts of your current mortgage. Look at your current mortgage statement. It will show you your current rate, your current payment, and your current loan balance. Thatís what a lender needs to give you a quote. Start by asking your current lender for rates, but also check out lenders including GuaranteedRate.com or QuickenLoans.com for a quote.

4. Get the current market value of your home. Ask a local broker who knows the area. Or go to Trulia.com, HomeValues.com or Chase Bankís home value estimator tool: https://www.chase.com/mortgage/mortgage-resources/home-value-estimator. When you know the current market value of your home, you can figure out your percentage of equity, compared to debt.

5. Check out federal programs to help you refinance ó even if your home is "underwater," meaning your mortgage is greater than the value of your home. Only loans owned by Freddie Mac or Fannie Mae, and have not been refinanced since May 31, 2009 are eligible for the HARP/HAMP refi programs. And you must not have had any late mortgage payments within the past 12 months.

A final thought: When refinancing, think twice about stretching out your mortgage over many more years, adding to your ultimate interest bill. If youíve been paying on your loan for seven or eight years, consider refinancing to a 15 year loan. The rate will be even lower, though the monthly payment wonít drop as much. But if you plan to live in your home for a while, you will have the possibility of being mortgage-free by retirement ó a very secure feeling. And thatís The Savage Truth.

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