I need advice on whether to consider a mortgage refinance,who can help me?

Edwards Finance > Refinance

Q. I have a mortgage, but this is an area of life that I'm not much up on. I heard a bit on a consumer show yesterday about (and I think I got this right) a "no closing cost home equity refinance." A woman caller asked about this and the host said she should consider one; and her situation was that she only had a principal now of about $17k, with only about 42 months left on it, with an interest rate of 7%. He said something about her being able to get a refi at around 4% at present, and something about it probably staying at that level for most of the time she had left, with it possibly going up later, etc. This got me to thinking. My situation is that I have a principal of about $35k, with about 8½ years left (I've been paying an extra $50/month for the past 3½ years onto the principal). My fixed rate is 7.375%, and this was a 15-year mortgage (I made a pretty big down payment, btw). The amount I borrowed was only $45k. So, can some of you here enlighten me some on this? I figured it's better to get advice from ordinary consumers and homeowners than to start calling lenders. Heck, some of you are probably experts on this. Thanks to anyone who wants to give useful and accurate feedback. Should I consider looking into this?

A. First of all, I'd recommend you do a Google search. There are websites out there that can calculate how much you will pay for various combinations of interest rate, closing cost, and length of time. Talk to a few lenders, run the numbers, see which will save you the most money. General advice: mortgate interest rates are currently around 5% for people with good credit. So at 7.375% you're paying way more than you need to, and some sort of refinance into a lower rate loan will be good (unless your credit is substantially worse than it was when you took out the loan). But which kind of loan is best for you depends on a variety of factors. A "no closing costs" loan is going to have a higher interest rate (usually about 1/4%-1/2% higher) than one where you pay the usual points and fees. Also be aware that "no closing costs" doesn't necessarily mean "no costs". You may be charged some fees when you submit your application, e.g. for appraisal and/or title insurance. As a rough estimate, if you are going to take another 5 years or more to pay off the loan, you're better off with a "conventional" loan (where you pay some points and other fees) than with a "no closing costs" or "no costs" or "no points" loan. If you plan to pay off the loan in under 2-3 years, the "no costs" loan is probably a better deal (but *beware* of prepayment penalties -- read the loan carefully). Overall, I would go for a fixed rate rather than a adjustable loan, because it's unlikely that rates will go much lower. (Keep in mind that the Federal Reserve is lending money to banks almost for free. In fact, allowing for inflation, I would say the Fed is _paying_ banks to borrow money from it.) If an when the economy improves, the Fed will put rates at a more "normal" rate. And there isn't a whole lot of room for them to lower the Fed discount rate. I'm no expert, but some of the web pages out there are run by experts, so use them. Look at what you're offered, figure out what it's going to really cost you (based on a realistic estimate of how fast you're going to pay it off), and compare with other offers. Don't jump at the first offer you get. Often (not always) the offers that come to you (vs. you going to them) are done that way because the lender charges a higher than market rate and is looking for suckers who will jump on to their oh-so-tempting offer. Total costs -- application fees, closing costs, and interest over the length of the loan -- are more important than just the up front cost.

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