Call it the mortgage morass. It's that perplexed, exasperated feeling you get when trying to refinance a mortgage without knowing how to proceed.
"It's all incredibly confusing," says Sidney Lenz, a senior vice president for Countrywide Funding Corp., a national mortgage banking firm with offices in Maryland. "Most people don't understand the options available to them in the mortgage market."
It's rational to take your choice seriously -- to shop for the lowest rate you can get. But if you believe that mortgage rates are near bottom, it's irrational to let indecision keep you from commiting.
"The market is very dynamic," says Paul Havemann of HSH Associates, which tracks mortgage rates for consumers. "It changes rapidly."
Complicating the picture is the fact that new-home loan products are constantly entering the market. It's like too many choices available in the cereal aisle at the supermarket.
While many procrastinators were obsessed with their options in January -- the last low period -- mortgage prices began edging upward, eliminating many from the market. "A lot of people were trying to squeeze out that last eighth of a percentage point, and they missed the boat completely," Mr. Havemann says.
To be sure, it takes courage to refinance when thousands of other homeowners are in the market pursuing the same plan. Lenders' phone lines and offices are as jammed with customers as they were in January. You're not the only one trying to take advantage of the fall in mortgage rates that occurred in early July after the Federal Reserve Board lowered its discount rate.
If you want to take advantage of low mortgage rates to refinance but don't want the process to smother your other priorities, follow this eight-step plan:
* Assemble a list of four to six lenders you'd consider letting handle your refinancing.
If you're satisfied with your current lending institution, place that name at the top of the list. You can sometimes save time and fees by refinancing with the same lender. Then select the names of a few other lenders recommended by friends, neighbors, relatives and co-workers.
* Gather a few facts about your finances.
What is the balance on your current mortgage? What's your present interest rate? What's your monthly gross income? What's the outstanding balance on your credit cards and other consumer debts? How much must you pay on these debts each month? Answer these basic questions and you'll have most of what you need to move to the next step.
* Estimate how long you'll stay in the home.
Are you a single woman who plans to sell your small stone cottage in a few years and to move halfway across the country? Or are you part of a middle-aged couple who sees your yellow split-level as your "terminal house"?
Estimating how long you'll stay is important. If you're like the couple with the split-level, you'll be inclined toward a low fixed-rate mortgage with a term that runs 15 or 30 years. You'll be willing to pay higher upfront refinancing costs in exchange for lower monthly payments year after year.
On the other hand, if you're like the single woman who intends to relocate in a few years, you'll lean toward a loan with low upfront costs. You might even want to consider an adjustable-rate mortgage at a low introductory rate or an "intermediate term" loan that starts below market and doesn't readjust for five to seven years.
* Phone one of the lenders on your list for a preliminary interview.
Tell the secretary you want to talk with a loan officer for a "pre-qualification interview" and that you also want to discuss loan options. Scratch from your list any lender who seems unfriendly or too busy to make time for you within a day or two.
* Go through your pre-qualification interview.
In no more than a half-hour to an hour, by telephone or in person, a good loan officer should be able to tell you how large a mortgage you can afford and which loan products your income will support. It takes more income to support a 15-year-mortgage, for instance, than a 30-year mortgage of the same amount. Say how long you plan to remain in your home, and ask the loan officer to suggest those mortgages best suited to your situation.
* Narrow your choice of mortgages to one or two types.
Suppose, for instance, that you've gravitated toward an old-fashioned
fixed-rate loan. But the pre-qualification process convinced you that a 15-year mortgage is out of your financial reach. That means your search is now focused solely on the 30-year fixed-rate product.
* Quickly shop by phone for the best rate.
Suppose it's Monday morning and you've just finished your pre-qualification interview, yielding rate information on this first lender. Can you afford to wait to contact the other lenders on your list? The answer is no. If you believe mortgage rates could be headed up soon, you'll want to quickly ask all the lenders on your list about rates. Ask only about the one or two loan types you're truly considering.
By making your queries quickly -- say by midday Monday -- you'll not only expedite your refinance process, you'll also be comparing apples with apples. Given the nature of the market, there's no point in comparing Lender A's rates on Monday with Lender B's rates on Tuesday.
* Pick your lender, apply and lock in your rate.
Forget about the guy you met in the elevator who claims to know a loan officer on the other side of town who could give you a much better deal. Chances are that the other prospect is roughly comparable to the one already on your list. Your opportunity to take advantage of the low rates could pass if you don't seize the moment.
Better to move ahead and make your commitment (ideally by the same evening that you did you rate-shopping). Schedule the first available application interview with the lending institution of your choice and make sure that the loan officer locks your rate immediately, assuming that's your wish. An increasing number of lenders will take your application by phone and also lock in the rate by phone, says Ms. Lenz, the Countrywide Funding vice president.
"If it looks like a good deal today and you know refinancing is something you want to do, don't delay. Do it now," she advises.