- The Washington Times - Thursday, November 17, 2005

Q:Is now a good time to refinance my mortgage? I keep hearing on the business television stations that interest rates are at the highest levels in months. Yet, almost daily, I receive some kind of mail solicitation that tells me I should refinance. What’s the deal?

A: Refinancing makes sense only if doing so accomplishes a borrower’s objectives. Most folks refinance their mortgage in order to lower their interest rate, which makes plenty of sense. But lowering the interest rate isn’t the only objective in refinancing.

You are correct that interest rates are, indeed, at the highest level since March. Unless you missed the boat, your current interest rate is probably lower than what the market can offer.

Homeowners refinance for a variety of reasons. Off the top of my head, here’s a list of common reasons.

• Lower the interest rate

• Convert an adjustable-rate mortgage into a fixed-rate loan

• Obtain cash out for home improvement or other reason

• Pay off a home equity line of credit that’s tied to a high adjustable rate

• Improve cash flow by converting to an interest-only loan

If you share one or more of these objectives, it may make sense to refinance. Each situation must be carefully analyzed. A knowledgeable and reputable loan officer can help you decide what, if anything, should be done to further accomplish your established objectives.

Now, let’s talk about the advertisements that seem to be covering the airwaves and mailboxes. I, too, have noticed an increase in mortgage advertisements and have a simple but unscientific explanation: Rates have increased and business has slowed, leading to a more aggressive approach by lenders to increase their loan volume.

Once again, let me pull some examples off the top of my head.

• I received a letter last week that screams in bold letters: “Our rates are still in the 4s.”

Well, I don’t know what the letter is trying to accomplish other than to dupe some unsuspecting homeowner into refinancing to some adjustable-rate program that carries huge fees. Low-fee mortgage rates under 4 percent just aren’t available. Anything close is a temporary “teaser” rate.

• I heard a radio ad that states, “If you’re paying more than 5 percent on your mortgage, you’re paying too much.”

Again, that’s baloney. Are they going to try to sell a 4.75 percent ARM to a homeowner whose current rate is 5.25 percent that’s fixed for 30 years?

• I received a letter soliciting a refinance with a note at the bottom that said, “Refinance before Dec. 10 and skip the next month’s mortgage payment.”

Utter nonsense again. It’s true that the first mortgage payment isn’t due until after the first full calendar month has past, but you don’t “skip” a payment. The first month’s mortgage payment is paid at settlement, either out of pocket or financed in the loan amount.

The bottom line is this: If your only objective is to lower your existing mortgage rate, simply compare it with what the market has to offer. If you have other objectives, a good loan officer should be able to map out a plan. If you read or hear something that sounds too good to be true, it probably is.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@pomcmortgage.com).

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