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Tuesday, October 2, 2012

People Refinance Again and Again

Many home owners are feeling a tad richer after refinancing — some again and again — thanks to the Fed’s never-ending quest to drive down interest rates.

Call it the refi redo.

Some are in the unusual spot of refinancing several times in the past few years. The saga could continue, after the Federal Reserve’s extra efforts to keep mortgage rates low.

“It makes all the sense in the world,” said Greg McBride, senior financial analyst for

Some borrowers can save when they spot a rate at least half a percentage point lower than their existing rate, experts say. More typically, people move when they see more than a full percentage-point drop.

Robert Traviss, 48, refinanced earlier this month — the second time in four years — and saved $150 a month.

Traviss, of Monroe, Mich., works at a utility company. He said that he and his wife started with a rate around 8% in 1999, refinanced to about 6% in 2008, refinanced again in September, and now have a rate at 3.75%.

The couple owe $112,000 on their mortgage and pay extra each month so they’re not just refinancing and dragging out the mortgage another 30 years.

“It’s kind of a no-brainer to save $200 when everybody’s hurting these days,” he said.

Take another example: Say a home owner refinanced a $200,000 mortgage in January at a rate of 4.25%. If that home owner now refinances to 3.7%, McBride said, the monthly mortgage payment would drop to $920 from $983 a month.

To be sure, we’re not talking about the highflying days of refinancing when people grabbed thousands of extra dollars out of the house to pay for cars, trips, or other goodies.

Data from mortgage giant Freddie Mac showed that in the second quarter of 2012, 23% of home owners who refinanced reduced their principal balance during the process, and 59% maintained the same loan amount — the highest in the 27 years of tracking.

Naomi Pennington, 69, who lives outside of Houston, didn’t want to tap into equity when she refinanced in September.

“Who would want to owe more money?” she said. Instead, she refinanced to drop her rate by about 3 percentage points to 4.25%. She’s saving $300 a month on the payment. It’s her second refinance in five years.

These days, some home owners who refinance might bring extra money to the table to be able to pay a little more toward what they owe, said Joel Gurman, vice president of mortgage banking for Quicken Loans.

As people refinance for the second go-around in a few years, Gurman said, some might opt to go with a shorter-term mortgage, maybe 20 years or 15 years, to save money in the long term. Quicken has a product called “Yourgage” that has a customized term ranging from eight years to 29 years.

Refinancing, of course, is a math problem — how much will it cost you to refinance to save X amount of dollars? How long will it take you to recoup the costs?

“Refinancing does have costs,” said Kathy Conley, housing specialist for GreenPath Debt Solutions, a non-profit HUD-approved housing counseling agency.

People should look at their costs, weigh how long they plan to remain in the home, and explore various types of loans. Consider using a housing counselor to help work out the numbers.

Mark Stevens, a regional sales executive for Bank of America overseeing Michigan, Ohio, and upstate New York, said he’s seeing more daily refinance applications now than a month ago — thanks to the Fed’s latest move.

His advice to consumers is to not rule anything out. Some federal programs covering Fannie Mae and Freddie Mac mortgages allow for refinancing even if the home owner owes more than the house is worth.

“Don’t think that you can’t do it,” Stevens said.

What works — and what doesn’t — for a refi redo:

Some people who refinanced a year or two ago might not qualify again.

For example, what if both the husband and wife worked in 2010 but one retired or lost a job this year. If only one person is working, their income would be much smaller than when they took out the loan, and they might not qualify again. If the debt-to-income ratio is now above 40%, that becomes a red flag for the lender, McBride said.

Some who recently became self-employed could face roadblocks, too.

A home owner needs a job or income. The refinance application could be turned down if you’re now out of work.

Home owners who owe far more than the house is worth are still not going to be able to refinance with a traditional mortgage. Their best bet would be the Home Affordable Refinance Program. But if you’ve already refinanced once under that program, you cannot refinance a second time.

Most experts say home owners should start with their original lender to see about any streamlining options for that refinance. But it’s key to compare options at various lenders, too.

The good news is that many home owners have time to shop.

“There’s no deadline pressure. The Fed won’t increase rates tomorrow afternoon,” said Keith Gumbinger, vice president for, a mortgage-information website.

Source: USA Today

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