New Jersey bankruptcy Article

The New York Times
By VICKIE ELMER
Published: October 20, 2011

REFINANCINGS made up 79 percent of all 2011 mortgage applications as of early October, according to the Mortgage Bankers Association, about the same level as last year but well above the 54 percent average of the last decade. Many of these applications have come from so-called serial refinancers in a constant search for the lowest possible interest rate.

Industry experts warn against rushing into a refinancing, especially if you’re a first-timer.

“The first question I ask people is, ‘What are your long-term plans — what are your plans for this house?’ ” said David Boone, a first vice president for residential lending at Provident Bank in Jersey City.

If you don’t plan on staying in your home long enough to recoup the closing costs of a refinancing, it may not be worth the effort, he said, adding that it takes about a year, on average, for that to happen these days. (A homeowner can expect to pay an average of 3 to 6 percent of the outstanding principal in refinancing costs, according to LendingTree.com.)

“You have to do the math,” Mr. Boone said. If, for example, closing costs are $2,000 but your monthly savings will be $200, you will break even in 10 months.

Homeowners may also want to forego a refinancing if the difference between their current mortgage rate and new loan rate is a quarter of percentage point or less, he said — although other mortgage experts say the gap should be closer to a percentage point.

Borrowers will need to consider other financial goals, like saving for college or retirement. “Think about it in a big-picture kind of way,” said Betsy Billard, an adviser at Ameriprise Financial in Manhattan. “Make sure it makes sense all around.” Can the monthly savings from the refinancing be invested and used toward these goals? How will the refinancing affect your tax bill?

After these issues have been discussed, don’t jump at the first advertised low rate dangled in front of you, Ms. Billard said, advising borrowers to shop around for a broker who can offer a variety of loan choices.

Phillip Loria, the president of Amerimutual Mortgage, a broker in Astoria, Queens, says borrowers should also resist becoming fixated on obtaining the lowest possible rate. “Sometimes people get caught up in that eighth of a percent,” he said, mentioning one recent client who calculated savings of $90,000 over the life of his refinanced loan. When rates ticked up an eighth of a point, the client held off — even though he still would have saved some $88,000 over all. “They try to time the market so perfectly that they end up doing nothing,” Mr. Loria said.

Here are four questions that borrowers should consider carefully before proceeding with a refinancing, according to experts.

HOW SECURE IS YOUR JOB

If you feel you could be out of work in six months or a year, then don’t use up savings to cover fees or increase the down payment. “You don’t want to rob yourself of liquidity because you’re throwing it all in your house,” Ms. Billard said. A follow-up question could be: “If you think you could potentially be out of a job in six months, how will the refi work for you?”

WHAT ARE THE SAVINGS?

Get a good-faith estimate from your lender and make sure it includes all the costs involved. Then compare these numbers with the amount you would save in the first year of the new mortgage. (Look at the difference between your old monthly payment and your expected new one and multiply by 12.)

WHAT ABOUT THE RATE?

Are you getting it locked in — and for how long? How many points are you paying to get a lower rate? Ask to see a rate sheet, Mr. Loria said.

WHAT’S THE RIGHT TIME FRAME?

If your children are heading for college in nine years or your retirement is likely in 15, your mortgage term should match up. Most mortgages are made in five-year increments, but some lenders will offer more variety. “You actually can get a 23-year loan,” Mr. Boone said. “You just have to ask.”