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Home Refinancing Decision Takes Some Care

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Mar 18, 2009 9:43 pm US/Mountain

Home Refinancing Decision Takes Some Care

Written by Alan Gionet

Reporting
Alan Gionet
  Many people are trying to save money right now by refinancing their mortgages. Rates have slipped below 5 percent, which used to be unheard of. So, when is it a good time to refinance?

DENVER (CBS4) -- "You would think it would be now," said one woman who owns two properties with her husband. Mortgage rates have dropped to lows that haven't been seen in a half dozen years. "Historic lows" some brokers are bragging.

But as many borrowers are looking at refinancing, they have to ask themselves some good questions:

Do you have an adjustable rate mortgage that will re-set some day and cost you more?

If so, the answer could be yes, locking into a new 15 or 30 year loan could be advantageous.

How long will you be in the home? Refinancing may cost thousands. And even if your payment drops by hundreds a month, you'll need to make sure it's worth the amount you'll pay to refinance.

Remember, if you are refinancing, you could be extending your payment schedule by months or years. Are you really saving money when you are paying longer?

Mortgage broker Anita Padilla, president of Megastar Holdings in Cherry Creek is plenty busy with re-fis these days.

"If you can lower your rate by half a percentage point or greater, it's time to refinance," says Padilla. That may often be true. A qualified mortgage broker is required to act in your best interest.

You should ask for and are required to get a tangible benefit form along with your mortgage inquiry.

"We're required by law to disclose first a good faith estimate which is required by federal law and the State of Colorado also requires a compensation disclosure," says Padilla. "So even if the broker hasn't locked the loan today, they're required to give you an estimate of what the compensation will be and then they're required once they lock the loan to give you and update of the compensation. So you should know exactly how much that mortgage is going to cost and how much the company is going to make."

The broker should then be able to explain to you why you will do better with a new mortgage or not.

Remember there are various ways brokers and mortgage companies make their money.

"Now let's say you wanted to go as low as 4 percent. You would have to pay discount points to buy down that interest rate," says Padilla. "Now some lenders will offer you a higher rate say five and a half with no fees because they're going to get paid a premium on the interest rate. And they'll use that premium to offset closing costs, origination fees or the cost involved with the mortgage."

Get multiple estimates and Padilla says, "Sure, customers can talk to various companies and bargain."

It's your home, your biggest investment. Don't get caught in a bad loan that won't help you keep it in the long run.

(© MMIX CBS Television Stations, Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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