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Open thread: Advice for people refinancing mortgages

By Holden Lewis · Bankrate.com
Tuesday, May 25, 2010
Posted: 11 am ET

What advice do you have for today's homeowners who are refinancing their mortgages? Let us know in the comments section.

This is a call to mortgage originators and to people who have refinanced recently. What potential pitfalls await today's refinancers? What should borrowers do to avoid problems?

Post away in the comments. Don't embarrass me by keeping the comments section empty.

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14 Comments
Holden Lewis
June 17, 2010 at 7:29 pm

Linda, I'll ask around. Or maybe a mortgage professional can answer your question: Can the reader qualify for a refi on the basis of income from a pension and Social Security disability? I wonder if the problem isn't that you're not drawing wages, but that the pension and disability income isn't enough to qualify for a loan. Anyone want to chime in?

Linda Gomez
June 17, 2010 at 7:11 pm

I am finding out that I need a job in order to refinance my loan of 267K @ 5.87% my home has equity. Is that true of all banks?

My husband is drawing a pension at age 60 as his company closed. I am drawing SS disability. We have not defaulted in our loan (want to lower our monthly payment), have a good credit rating, and while we meet the qualifications for a government loan modification, but we do not want to go that way as we do not want to take the 100-150 point hit on our credit rating. Our current bank turned us down for a conventional refinance loan.

Is there hope for us to take advantage of a lower interest rate? What should we do? Are banks giving anyone like us loans?

Holden Lewis
June 17, 2010 at 2:09 pm

Pat, I believe the answer depends upon the lender. Each lender and servicer will have its own policies on escrows.

So you'll have to ask your closing attorney or title agent how to do what you want to do. I'm a little unclear on your objective, anyway. The unspent money that's in the escrow account on the day of closing will be refunded to you. Typically, that refund check arrives a few days or weeks afterward, so you have to fund the new loan's escrow account out of pocket. The attorney or title agent will tell you how much cash you must bring to the closing.

If you put extra money in escrow, you're merely giving the servicer an interest-free loan.

Pat
June 17, 2010 at 12:51 pm

I'm looking to refinance (previous 25-yr @ 5.9% to a 10-yr, 3.75%). My current mortgage does not included taxes and insurance -- I pay separately. I'm told that my rate will increase 1/4% if I want to continue with that arrangement for the refinanced loan. So... of course, why not set up escrow for taxes/insurance and pay up-front at closing -- which I am prepared to do. So the question is... how many months payment for taxes/insurance is needed to create this escrow? 3 months? 6 months? 8 months? My insurance is currently paid through January 2011 and the tax bill for 6 months is payable July 1 (not sure when closing will be...)

Thanks

Holden Lewis
June 07, 2010 at 8:11 am

Mark, somehow I missed your question until now, 13 days after you posted it.

Rob Bernabe, a longtime mortgage executive who recently wrote a book called "Mind Your Own Mortgage," offers this advice for refinancing: Never refi for a term that's longer than your current payoff, and refi only if you recoup your expenses in two years or less.

For you, that first rule means that, if you refi, you should amortize the new loan over 27 years or less. (Bernabe says you should shoot for a 15-year amortization if you can.) If you refi at the lower rate and amortize it over 27 years, and you recoup the fees in two years or less from lower monthly payments, then you meet the two criteria.

Margaret Simpson
May 27, 2010 at 5:45 pm

Be very aware that if you are in a non-recourse state (such as California) refinancing your original mortgage changes it to a recourse loan.

Non-recourse means they can't sue you if you ever default on the loan; recourse means they can.

No one ever tells you this - consider it carefully especially if you are refinancing because you're having a difficult time paying your mortgage. Be sure you know the risk.

Doug Matteo
May 27, 2010 at 5:17 pm

A long while back you posted something here and titled each paragraph with a Stones' song. You don't remember but I commented on it back then. Some things just stick in your mind.

Holden Lewis
May 26, 2010 at 9:36 am

Thanks, Doug! Howdja know?

Doug Matteo
May 25, 2010 at 10:02 pm

Doing my best to save a fellow Stones fan from embarrassment!

Mark
May 25, 2010 at 3:25 pm

Just wondering what the rule of thumb is here. For example, if you have a 275K mortgage at 5.62 APR(30 yr. with 27 yrs remaining so principal has hardly been reduced) does it make sense to refi at 4.25 APR(30 yr) just to get the payments lower? (That's assuming no points and no fees other normal refi fees) Thanks for any advice.