Honey, I Shrunk The Mortgage

Rates are low, and seldom has there been a better time to refinance your mortgage. Here's how, step by step.

Points are essentially loan discount fees. As an example: on a $100,000 loan with two points, you pay $2,000 in these fees.

  • Prepayment penalty: A charge contained in some mortgages to discourage early repayment. Such charges are limited in many areas of the country and are sometimes waived by financial institutions. Cost: from zero to a fixed percentage of the remaining mortgage balance or the value of interest for a certain time.
  • Survey: In some cases, especially for a detached property, a lender may require a survey. Cost: varies.
  • Taxes: Local jurisdictions charge recording fees to place documents in public files; others actually tax new financing. Cost: varies.
  • Termite inspection: May be required by lenders to ensure property is not infested with wood-destroying termites. Cost: $40-$60.
  • Title insurance: Lenders will commonly require title insurance up to the value of their loan. In the event the title is faulty-meaning there’s a judgment, tax lien or some other encumbrance on the title-“lenders” title insurance assures that the party making the mortgage will be repaid. Cost: varies by location and according to the size of the new mortgage.
  • Now that you have an idea of what kinds of cost you can expect to encounter, it might be helpful to learn from some other experts on the subject. We talked with several homeowners who have recently refinanced their properties. Their stories provide insights into the refinancing process-and tell you what to look out for.

    Roy Graham and his wife, Pauline, offer a lesson in the value of persistence. They defied conventional wisdom when they refinanced their home less than a year after buying it. “Our banker told us to wait for two years, but we decided to be audacious,” says Roy. “We shopped around and found someone else willing to do it at the 11th month.”

    Roy, an ordained minister, and Pauline, a nurse, bought their home, a three-story, 100-year-old Victorian in the h
    istoric Cedar Park section of Philadelphia, in April 1997. At the time, Roy admits, the couple’s credit “wasn’t that strong.” As a result, they got a mortgage with an 11.99% interest rate. When they refinanced in March 1998, however, they’d established a good track record of paying their mortgage on time. They secured an interest rate just over 9%-saving more than $100 a month in the process. Even though they had to pay a prepayment penalty to the bank that originally financed their six-bedroom house, it was worth it for the couple to refinance.

    “It was an all-around good deal,” Roy says, adding that their first loan was an ARM, while the refinanced loan is fixed for 30 years, allowing the couple to know exactly what their payment will be each month-regardless of swings in interest rates.

    It didn’t take Deborah Darrell long to refinance her mortgage either. Darrell bought a spacious, sunny one-bedroom condominium on Manhattan’s Upper East Side in February 1997. Her original rate through a commercial bank: 8.5%. But this past June, she refinanced with a savings and loan society and obtained a rate of 6.5%-knocking off

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