- The Washington Times - Friday, March 2, 2001

Meshelle and Chip Mahan were still unpacking boxes in their new Anne Arundel County home when dropping interest rates drove them to consider refinancing their loan. After checking rates and doing the math, the couple found that their best option was to stick with the same title company and bank they had used to buy their house just three months earlier.
There was one small difference this time around: Refinancing their new loan was going to knock $125 off their monthly mortgage.
Fueled by 30-year fixed-loan rates hovering at about 7 percent, the refinancing boom is drawing the attention of homeowners anxious to lower monthly payments, consolidate debt or trade in adjustable rates for more attractive fixed rates. Refinancing has the potential to dramatically ease mortgage stress, say financial experts, whose offices are being deluged with calls and questions from consumers who don't want to miss a chance to save money.
"Refinancing is exceptionally popular right now," says Karyn Wilson, president of the Mortgage Banker's Association of Metropolitan Washington and district manager for North American Mortgage in Fairfax. Last year, according to Miss Wilson, refinanced loans represented 19 percent of the industry's new loans. Today, she says, refinances represent about 60 percent of the business. And, with Federal Reserve Chairman Alan Greenspan's recent assertion that there could be another reduction in the short-term interest rate, the boom doesn't appear to be ending.
"We fully expect to see refinancing activity in the second quarter of the year," Miss Wilson says.
The rush to refinance is due in part to more savvy consumers, many of whom refinanced two years ago when rates were low, Miss Wilson says.
Rates today just about match 1998's lows, but home values have gone up. That makes it possible to obtain a new loan without paying for the private mortgage insurance (PMI) that is charged for a loan balance of more than 80 percent of the house's market value.
But refinancing isn't for everybody.
"It has to make good sense," says James Bridgeman, a loan officer with PRO Mortgage Corp. in Gaithersburg. It isn't enough, he says, simply to call around or check rates on the Internet. A borrower also needs to know what he will be paying for that rate. And if the loan is a "no-cost" loan, consumers should know that the cost comes hidden in a higher interest rate.
"It is going to cost you money to refinance, one way or the other," Mr. Bridgeman says. "You have to ask: What is it going to cost you? What is it going to save?"
For the Mahans, the math seemed simple. After checking with several lenders, the Mahans settled on a 7 percent loan with their original lender; a reduction from the 7 5/8 percent they had been paying. They didn't have to pay for new inspections, and their title search came at a reduced rate, since little had changed since their November settlement.
Yet they were in for a shock when they sat down at the title company to close the deal. Only then did the Mahans discover that they would have to pay $2,000 in escrow costs. In their haste to refinance, they never got the checklist of closing costs that includes prepaid interest on property tax and hazard insurance.
"It was 4 p.m. and we were trying to close so that we could avoid paying interest through February, and I'll tell you it was crazy in the office," says Mrs. Mahan, who had to track their mortgage broker down by cellular phone because he was too busy to attend the closing. "They were so busy, I swear they were flying by the seat of their pants."
Although the Mahans will eventually get $2,000 back from their original lender, their experience is a good example of the hidden costs and confusion that cause so many to avoid home refinance, even when it is in their best interests. Mr. Bridgeman calls it the "aggravation factor."
"A lot of people don't refinance because they don't want to go through the hassle," Mr. Bridgeman says. "Though we can make it easier in some respects, you're probably going to have to get out those tax returns and pay stubs. It can be an annoying process."
One way of simplifying the process involves calling the original lender and asking for a lower rate, says Fairfax financial adviser Jon Wagner. "A lot of times, they'll drop it just to keep you as their client," says Mr. Wagner, who also tells clients to ask themselves one very important question before they start digging through W-2 forms: How long do they plan to be in the house?
"It generally takes five years to recoup the cost of refinancing after you pay points on the loan, pay for appraisals, inspections and bank fees," Mr. Wagner says. Getting help finding the break-even point can certainly ease the "aggravation factor."
"This is a consumer's greatest investment," Miss Wilson says. "You truly need good dialogue with a loan officer to make a good plan for your family."
And even if the all-important break-even point has not arrived, Miss Wilson says it couldn't hurt to fill out a loan application and wait for rates to drop even further.
"Last time they dropped rates, we were able to automatically finalize lots of loans," she says. Even when borrowers have a financial adviser, loan officer or mortgage broker at their side, it is important that they remember to do their homework to make sure there are no surprises like prepayment penalties or lender fees that they will have to pay out-of-pocket.
Mr. Mahan, for example, strongly recommends that homeowners get a HUD-1 checklist before closing to make sure all the enumerated charges match those on forms at the title company.
"Go over it with your lender item by item," says Mr. Mahan, whose wife's maiden name almost ended up on the form instead of her recently changed married name.
Mr. Bridgeman also urges borrowers to check into their loans as thoroughly as possible.
"If it's the weather, you can ask anybody for information and take their word," he says. "If it's something where a mistake will cost you $5,000, you should check it yourself."

More info:

On line
Plug your loan numbers into Karl Jeacle's well-organized graphics (www.jeacle.ie/mortgage) to see what you will pay each month.
The National Financial News Service (www.onmortgage.com) provides your mortgage information to three lenders with the lowest rates in your area. They compete to provide the lowest prices.
A site involving partnerships with more than 40 companies, (www.eloan.com), including Yahoo, ETrade, CBS Marketwatch, Telebank, CarsDirect, CarPoint and Kelly Blue Book, offers mortgages, auto loans, credit cards and small-business loans on line.

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