How to decide whether to refinance your mortgage: Minding Your Money

Andrea Levy, The Plain Dealer About this series

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CLEVELAND, Ohio -- Record-low mortgage rates sparked a refinancing boom that started more than a year ago and stretched through 2011.

Requests to refinance surged in early December, as mortgage-interest rates dipped below 4 percent for a 30-year, fixed-rated loan, according to weekly data from the Mortgage Bankers Association.

If you're toying with when to apply -- and whether it's worth the effort -- here's some bad news: There's no simple answer or rule of thumb.

"It's all math," said Jeffrey Steed of Schmidt Mortgage Co. in Rocky River. "It's all going to be your individual situation, to just look at that math. But I think you start with 'How long do I intend to be there?' and you go from there."

The good news: Economists expect rates to skate along at low levels, so there's no need to rush. You have time to evaluate the worth of your home, consider the costs and shop for the best deal.

Before you jump on the refinancing bandwagon, here are some things to consider:

It doesn't matter how low rates go. If you don't have a job or your credit history is tarnished, you'll struggle to get a loan. Check your credit score several months before trying to refinance, and clear up any inaccuracies on your report. Local mortgage brokers say applicants should show at least two years of steady employment.

"If you were laid off for six months in the past two years, and you were lucky enough to get another job, well, I'm glad you got another job," Steed said. "But it's going to be a problem."

Lower your expectations. After years of home-price declines, your house probably isn't worth as much as you think it is. Before jumping into refinancing and paying for an appraisal, check

out websites like, find out what nearby homes have fetched recently, and talk to real estate agents who are familiar with your neighborhood.

"A good lender will tell the buyer to spend some time doing research on their own," said Andy Neidus, branch manager at American Midwest Mortgage Corp. in Mayfield Heights.

Fix up your home and collect records on any improvements you've made since your last appraisal. Consider how long you plan to stay in the house. If it's just a couple of years, you might not recoup the closing costs. So refinancing might not be worthwhile.

If you plan to live there long-term, consider options ranging from reducing your rate to changing your loan term -- to cut it back from a 30-year to a 15-year mortgage, for example. And run the numbers to see whether you'd be better off making a few extra monthly payments, to eliminate the loan faster, instead of refinancing.

Research rates online or by calling local lenders. Use calculators at to determine whether you should refinance and how long it will take to get back the money you spend on the process. Talk to your current lender, which might be able to use title work from a previous refinancing to save you money.

"You can call around, talk to real estate professionals to determine if the lender is reliable and has been in business long enough," Neidus said. "If they're reliable, they're not going to jack up the costs."

If you're worried about getting approved, consider adjustable-rate loans, which can be more flexible. Or consider the federal Home Affordable Refinance Program, for homeowners with Freddie Mac or Fannie Mae loans. The program, which will see some revisions in early 2012, can help people who owe more than their homes are worth.

Don't try to predict where rates will head. Some lenders say rates will rise and fall with the stock market. And rates may be higher during the holidays and on weekends. But, generally, you'll have to rely on your research, and your lender's expertise.

"Clearly a 4 percent or below, 30-year fixed-rate mortgage is a no-brainer if you can refinance," Steed said, adding "The biggest things that have stopped people are the value of the house. employment and credit."

Follow me on Twitter: @mjarboe


Category: Credit

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