By refinancing, you could save some big bucks

THE BALTIMORE SUN

Mortgage lenders only shake their heads in disbelief at the numbers. Why do hundreds of thousands of homeowners hang on to mortgages well into the double-digits when they could be traded for home loans under 10 percent?

"It's just unbelievable," says Angelo Mozilo, president-elect of the Mortgage Bankers Association of America, based in Washington. "By failing to refinance, these people may be losing tens of thousands of dollars in interest."

Mortgage specialists grope for explanations as to why an otherwise rational person would cling to a 12 percent, 13 percent or 14 percent mortgage when refinancing can bring a loan several percentage points lower.

"Some people -- the couch potatoes who only watch TV and don't read the newspapers -- aren't aware that there are lower interest rates out there," speculates Buddy Koolhof, the Owings Mills branch manager of NVR Mortgage.

He contends that a small number of homeowners are too financially naive to see refinancing as a possibility.

Far more numerous, however, are those who know refinancing is an option yet fail to pursue the alternative out of fear, inertia or uncertainty.

"Refinancing is not at the level of going to the dentist, but it's close. In general, I think people feel the mortgage process is intimidating and cumbersome. They feel burdened by it and tend to procrastinate," Mr. Mozilo says.

To be sure, there are reasons to be intimidated by the refinancing process, mortgage specialists allow.

For one thing, seeking a new mortgage carries with it the possibility of rejection. You may worry that your house has declined in value or imagine you've lost your creditworthiness due to newly acquired debts or a reduction in income. Compounding your anxiety are the news reports indicating how lenders have tightened credit standards lately.

In addition, you may wind up procrastinating because you're overwhelmed by the range of choices in loan rates and pay-back periods.

"You can procrastinate for the rest of your life, but when it comes to your mortgage, you may be paying out a lot more money than you have to and you should stop procrastinating," says Paul Havemann, a vice president of HSH Associates, a mortgage publishing firm.

If you're one of those homeowners who has thought for months about refinancing yet been stumped on how to proceed, Mr. Havemann suggests this step-by-step process:

* Step One: Find out what you're paying for your current mortgage.

Many people know only their monthly house payment, including taxes and insurance and have forgotten the interest rate on their loan. Yet to get a general sense as to whether you're a good candidate for refinancing, you need to know your interest rate, the monthly amount you now pay for principal and interest on the loan, and the outstanding balance.

Such numbers, used as a standard of comparison, can be found on your monthly mortgage statement or in your payment coupon book. Or you should be able to easily obtain them by telephoning your lender.

* Step Two: Get a general idea of current mortgage rates. Many newspapers, including The Sun, offer comparative mortgage rate tables for area lenders. (See Page 4 of this section for rates from area banks and S&Ls.;) You can also get a quick overview by calling a couple of local lenders.

In addition, you can call HSH Associates, which gathers comparative loan information. The company has a mortgage rate hot line featuring the week's average interest rates by classification, including 15- and 30-year fixed-rate loans, as well as standard adjustable rate mortgages. The number is (201) 838-8197.

If your quick survey reveals that your fixed-rate home loan is at least two percentage points above the prevailing fixed-rate mortgage for a similar term, move on to to the next step. Even if the gap is narrower, you may want to proceed if your circumstances are unusual.

* Step Three: Go see a local lender for a quick number-crunching session.

Take an hour at lunch or another time when you're off work to get a sense about how refinancing would apply to you. Tell the loan officer you're not ready to commit but you want to know if refinancing makes sense.

Present the loan officer with the numbers you gathered in Step One, including your monthly payment and outstanding balance. Ask him to estimate how much in closing costs you would have to pay to refinance the loan. Then tell him to help you answer

these questions: "How much would I save on my monthly principal and interest payment?" and "How many months, with the lower payments, would it take me to make back my closing costs?" (Remember to consider different types of mortgages and try to come away with a sense of the type and term of loan you'd be seeking.)

* Step Four: Go home, put up your feet, look at the numbers and talk over your housing plans.

To make refinancing worthwhile, you must live in the house beyond the point at which your monthly savings have compensated for closing costs on the new loan. To evaluate this, however, you must estimate how long you plan to stay in the home.

If, for instance, you're in sales with a medical supply company and expect a transfer in a few months, it probably wouldn't pay to refinance. On the other hand, a tenured professor who plans to stay at her university post for at least 10 years could be a prime candidate for refinancing.

If your plans make it logical to move forward to the loan application process, go on to Step Five.

* Step Five: Arm yourself with the statistics you'll need to show you're a worthy candidate for a new home loan. With these numbers you can go through a general pre-qualification process, just by phoning a lender or two and reading off some numbers.

You'll want to provide numbers on income from your last W-2 or pay stub, as well as documents showing income from savings, investments, alimony and other sources.

At the same time, you'll need a list of your long-term debts, which usually includes any debt expected to last 10 months or longer.

These should include such debts as car and consumer installment loans but should not include utility payments. You'll need numbers for both the monthly minimum payment due and the total outstanding.

* Step Six: Search for the lender with the right loan.

Again, local newspaper features or ads should prove helpful in finding the lender with the most favorable terms in the loan category you're seeking -- whether it be a fixed- or adjustable-rate loan; one payable in 15 or 30 years, or some variation. Newspaper listings usually don't include every mortgage rate offered by a lender, so ask questions.

Telephone two or three lenders with rates that look promising and then zero in on the best.

* Step Seven: Set up an appointment for a detailed interview with the best lender. The best lender will probably be the one with the lowest combination of rates and points, says Mr. Havemann of HSH Associates.

You'll also want to look for a lender with a reputation for service -- though there's no guarantee that servicing on your home loan will remain in the hands of the lender that gives you the mortgage, Mr. Havemann observes.

When you telephone for an appointment with the lender you've selected, request an application packet or checklist of what you'll need to fill out the application. This should be mailed in advance of your visit.

"Now you're getting down to the serious stuff: W-2s, proof of ownership, assets, debts, bank account numbers, application fee and so forth," Mr. Havemann says. "You should come prepared to write one or more checks."

The notion of having to write a check to get a new loan on the house you bought a good while back may seem like an exercise in the absurd. But the exercise, however trying, can be one that can save you a great deal of money.

Says Mr. Havemann: "Refinancing is not as much work as you think and the financial rewards can make it extremely worthwhile."

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