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.

$250 in monthly payments. To refinance, she paid roughly $2,000 in fees, which were wrapped into the mortgage and will be amortized over the life of the loan.

Darrell, a 33-year-old vice president at a New York-based strategic communications firm, figures she’ll remain in her pre-war mid-rise condo for at least three to five more years.

“When interest rates dropped, I sought this refinancing out,” says Darrell, who is single. But her refinancing didn’t proceed without a hitch. She had a mortgage broker working for her-a middleman who’d shopped around for competitive rates and had guaranteed he could slash her mortgage payment by $300 a month. At the closing, in the midst of signing all the paperwork, Darrell saw a document saying the life of the new loan was 480 months-or 40 years-instead of the 30-year loan she’d requested. Since a 40-year loan tacks on considerable interest charges, she balked at signing the documents. Besides, “I thought it was totally unscrupulous,” of the broker, she says.

Ultimately, the closing was rescheduled for another day-after new loan papers were drawn up to reflect a 30-year mortgage. Since the length of the loan was cut by 10 years, the $300 savings promised to her wound up being $250.

Still, “I knew it was a money-saving proposition for me in either case,” says Darrell, whose total mortgage-including principal, interest, taxes and insurance-went to $2,000 monthly from $2,250.

“But people should be really careful about knowing the terms of any refinancing,” she cautions, “not just how much you’ll save each month or what the interest rate will be.”

As these homeowners’ experiences demonstrate, there is no one way to go about refinancing your mortgage. But if you do decide to refinance, here are five other valuable tips to follow:

1. Seek out loans without points. Lenders today know they have to be competitive to win business, so many offer no upfront fee or no-point refinancing deals.

2. Request a loan without prepayment penalties. If your lender insists on a prepayment charge, negotiate to include a clause that says prepayment fines will be eliminated after you’ve lived in the house for a certain number of years.

3. When it comes to title insurance, see if you qualify for what’s called a “re-issue” rate. In cases where there has been a title search conducted in the past couple of years, many insurers offer a discounted rate and you may save anywhere from 10% to 20%.

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

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