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.

negotiate terms and rates if he knows he may lose your business to a competitor.

5. Finally, shop around and compare costs-don’t just go with the one bank that offers the lowest interest rate. Remember: a low rate is meaningless if a host of other fees offset the financial benefit that a lower rate offers.

Fannie Mae spokesman David Thompson offers this advice: “We tell people to shop around so you get the best rate, along with the best overall terms.” And, he adds, “with refinancing being as hot as it is right now, it’s really a buyer’s market out there.”

“We did a lot of research for our new mortgage,” says Cheryl Brown “and it really paid off.”

Help Online
Fannie Mae
Fannie Mae, which handles one of every four mortgage loans in the country, also has a Web site you can use to find out whether it would be advantageous to refinance your mortgage. Click on the HomeRefinancePath. It helps you decide when to refinance and includes a calculator that lets you perform “what-if” scenarios using different interest rates and loan terms to calculate your savings.

Intuit Inc.
Intuit Inc., which markets personal finance software such as Quicken and MacInTax, sponsors a Web site that includes a Q&A section on refinancing. It also gives individual state and national averages of mortgage rates, and has interactive tools that allow you to comparison shop for the best deal.

Chase Manhattan Corp.
Chase Manhattan Corp. has refinancing information on its Web site. Select the mortgages and home equity destination and go to the mortgage home page. There you’ll find a calculator that helps you determine whether to refinance.

Should You Refinance Your Home?
Should you or shouldn’t you refinance your mortgage? That’s what this simple to use worksheet will help you determine using the following formula:
1. Current Monthly Mortgage Payment $

2. New Monthly Mortgage Payment $

3. Monthly Savings $

4. Total Refinancing Costs $

(Don’t forget to include everything in your costs, including points, legal fees, credit check, inspections, etc.)

5. Break-even Point (in months)

(Divide Line 4 by Line 3. This is how many months it will take to recoup refinancing costs)

6. Future Time In Home (in months)

(Example: If you plan to live in your home for three more years, enter 36 months)

Solution: If Line 5 is larger than Line 6, it’s probably not worth it for you to refinance. However, if Line 6 is larger than Line 5, you should seriously consider refinancing your home mortgage.

7. Total Savings (Loss) to Refinancing $

(Source: Black Enterprise (based on author’s reporting)

Using the worksheet, here is an example of what a homeowner would save if he refinanced:

Scenario: A homeowner is now paying a mortgage of $1,200 per month. If he refinanced, the new mortgage payment would be $1,000 monthly, for a savings of $200 each month. His refinancing charges would come to $1,800. That means it would take nine months before the homeowner would break even. Since this individual plans to live in the home for at least three more years, subtract the time it takes to break

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