4 Tips for Refinancing Your Mortgage

Interest rates are hitting new record lows, but banks are making the process difficult. Here’s how you can improve your chances.

By RUTH SIMON

There has never been a better time to refinance your mortgage. Rates are at record lows. The government is devising new programs to help homeowners. The economy and job market are improving, albeit slowly.

In theory, those factors should be producing a boom in mortgage refinancing. But locking in a deal is proving to be a challenge these days — even for well-heeled homeowners.

That is because low appraisals and tight lending standards are making it difficult for many borrowers to refinance, even if they have good credit and substantial assets. Even those who meet these hurdles can face frustrating waits.

The good news is that borrowers aren’t powerless in the process. By shifting assets to your mortgage lender, cleaning up your credit and understanding the new government programs, you can improve your chances of scoring a good refinance deal.

“The reward in the end is substantial, provided you can survive the process,” says Keith Gumbinger, a vice president at mortgage-data provider HSH.com.

Powerful Lure
Today’s interest rates are a powerful lure even for homeowners who bought or refinanced a home recently. The average rate on a 30-year fixed-rate conforming mortgage is 3.84%, down from 4.22% in mid-March and the lowest level in at least 60 years, according to HSH.com.

Homeowners can save a bundle. At current rates, someone who took out a $400,000 mortgage in May 2011 at 4.75% could shave more than $200 from his monthly payment, according to HSH.com.

The latest drop in rates has created a big pool of potential borrowers. All told, about 20.5 million homeowners have mortgages with rates above 5% and are current on their loan payments, according to real-estate data and analytics company CoreLogic, making them good candidates for a refinance. Another 12.9 million have rates between 4% and 5%.

Lance Roberts, a money manager who lives in a Houston suburb, locked in a 5.25% rate when he refinanced his mortgage at the end of 2010. Now he is refinancing again, to a loan with a rate of about 4%. “I was great,” he says, “but at 4%, I’m doing even better.”

As a general rule, anyone who can find a deal that will recapture the closing costs within 18 months should “just do it,” says Lou Barnes, a mortgage banker in Boulder, Colo.

Relief, for Some
Many borrowers haven’t been able to take advantage of lower rates because they are “under water,” meaning they owe more than their homes are worth. But some of these homeowners might soon get relief. Five of the nation’s biggest banks — Ally Financial, Bank of America (BAC: 7.93, 0.06, 0.76%), Citigroup (C: 28.87, 0.13, 0.45%), J.P. Morgan Chase (JPM: 37.15, 0.08, 0.22%) and Wells Fargo (WFC: 34.11, 0.14, 0.41%) — are required to refinance certain underwater borrowers as part of a $25 billion settlement of the government’s investigation of questionable foreclosure practices.

Read the rest of  this article at Smart Money

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