Home Mortgages: Up, Up and Away!

Refinance NOW—before it's too late

If you haven't found the time to refinance your existing home mortgage, it's time to take action—like yesterday! Every time Alan Greenspan, Federal Reserve Board Chairman, opens his mouth, you can bet that the federal funds rates will rise by at least a quarter of a point, or by 25 basis points in investorese. What that means to you is that home mortgages will rocket as well.

A quarter of a percentage point may not seem like much, given that the federal funds rate currently stands at 2 ¾ per cent, but a reality check quickly reveals that you, personally, have probably never seen 2 ¾ per cent interest on anything in your lifetime. Take a look at your credit card statements. Are you paying 2 ¾ per cent on your credit? What about your home mortgage? Without getting technical, there's little correlation between the federal funds rate and home mortgage rates except the direction in which they travel, and right now that direction is headed to the sky.

You've already missed the opportunity of a lifetime to lock in the lowest rates you'll see for the foreseeable future, but you have a little more time to get your hands on relatively cheap money. The window of opportunity is rapidly closing, so if you're going to refinance, you must do it as soon as possible.

Things you may not know about refinancing:

A small rate cut can pay off handsomely in smaller monthly mortgage payments.

Smaller monthly mortgage payments will decrease your tax deduction, because you will no longer be paying as much interest as you've been paying. Factor this in, because it's the total savings that matters.

You can and should ask to have fees waived or reduced: application fees, origination fees, appraisal fees, legal fees, points, and closing costs.

If you don't have cash on hand to pay fees, you can get them tacked on to the mortgage, paying nothing out of pocket for your refinanced home mortgage.

If you refinance and shorten the term of a home mortgage, you will pay a higher monthly payment, but you'll save a significant amount of money over the term of the mortgage in addition to paying off your home and building equity faster.

Standard mortgage terms run 15 years or 30 years. If you'd prefer a term somewhere in between the standard terms, ask for a custom loan and designate a term that works better for you. Find a term that strikes a balance between a term shorter than 30 years and monthly payments lower than those of a 15-year mortgage.

If you cannot get a custom term, settle for a 30-year mortgage and pay more than the monthly payment to pay off the loan sooner. You must also negotiate no pre-payment penalty.

Where to go from here

1. Review your credit record with each of the three credit bureaus: Equifax, TransUnion and Experian. Mistakes are common in credit reports, and you may be surprised at what you find: accounts that do not belong to you, balances that do not match your statements, an identity mistake or worse. Correct any bad information.

2. Compare mortgage rates and fees online among several finance companies.

3. Use a good mortgage calculator. Using refinance calculators is the only way to determine which loan is the better all-around deal.

Work fast, but negotiate hard to make a deal that works for you. The loan company wants your business as badly as you want a better rate.

M J Plaster is a successful author who provides information on home loans and home equity loans. M J Plaster has been a commercial freelance writer for almost two decades, most recently specializing in home and garden, the low-carb lifestyle, investing, and anything that defines la dolce vita.