RateWatch #342 - Refinancing: Why and When
February 8, 2003 By Dick Lepre
dicklepre@rpm-mortgage.com

Common Questions About Refinancing

With rates dropping we have seen an increase in refinancing volume. I have received many inquiries lately which involve questions about refinancing and would like to answer some reoccurring questions.

1) How do I know if I should refinance?

You should refinance if:
- you can lower your rate at no cost
- you want to replace an existing ARM because you don't want to worry about the rate in the future.
- you need more money

2) But every time one of these refi booms occur I miss it.

This comes from waiting too long. For some strange reason, when rates are down more people refinance. Lenders, appraisers and everyone else get too busy and some folks get left behind.

An additional problem is the popular media. Sometimes they report information too late. 

The thing to do right now is to get started.  Apply on-line now - let us check your credit.  We will mail an application back to you and you can get the paperwork to us.  We can lock your rate and will give you a one-time free rate roll-down if rates improve before we draw the loan documents.

3) Why should I refinance, even at zero cost, to a new 30-year mortgage?  Isn't it going to cost me more in the long run since I now have to pay it for 30 years?

Not if you do it correctly. Let's say that you have a 30-year fixed rate loan at 7.0% and have been paying on it for 4 years. If you can lower your rate to 6.5% at no cost you should do so.  If you want to pay it off in 26 years (the remaining term of your existing loan) you merely have to use the calculator on my web site to calculate the payment required to pay the new loan off in 26 years.  It will be more than the 30 year payment but less than what you are now paying.

The point here is that if you can lower your rate at no cost you cannot lose if you play your cards right.

4) But I hear that the economy is collapsing and rates will be lower later this year.

If you make financial decisions based on what you hear on the news you will go broke.  The news tells you what happened yesterday.  If you can refinance at no cost and save money then do it immediately.  If rates get lower do it again.

5) I don't want to refinance but I am thinking of buying a new house in about six months. Should I lock a rate in now?

The answer, in almost all cases is "no."  Rate locks longer that 60 days get expensive and require an up-front deposit that you will forfeit if you walk away from the loan.

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