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The Honolulu Advertiser
Posted on: Sunday, August 25, 2002

Lower payment vs. more closing costs

By Adam Geller
Associated Press

Q. I refinanced my mortgage a year ago, when rates seemed too good to pass up. Now that they've dropped lower still, is it worth refinancing yet again?

The costs of refinancing

Here are some common charges for refinancing a $300,000 mortgage.

• Application fee: $0 to $495

• Appraisal: $300 to $450

• Attorney or settlement fee: $400

• Credit report: $35

• Documentation preparation: $125 to $250

• Processing fee: $300

• Title insurance: $1,000

Source: LendingTree Inc.

A. A simple answer would be convenient, but the reality is:

It depends.

The wisdom of refinancing, especially for a second time, depends on you, your housing and financial circumstances, and the terms of the original mortgage and a potential new one.

For starters, though, you're right that this is about as good a time as there has ever been to secure a home loan. But what to do requires some introspection.

If you refinanced a year ago, you paid closing costs. If you refinance now, you'll likely pay them again. You need to answer a few questions about yourself to determine if it's worth your while.

First, is your goal merely to reduce your monthly costs to balance a tight budget, or are you intent on saving money over the life of the loan? If you're in the first group, refinancing will almost certainly help.

If you're like most people, trying to net real long-term savings, that requires justifying the re-financing costs. Size up how long you expect to be in your home or, at the very least, how long you expect to be in the current loan. It takes most homeowners three to four years of lower monthly payments to cover the combined costs of two refinancings.

Remember that your savings don't have to merely cover the cost of refinancing No. 2. You also need to remember that you still haven't completely covered the costs of refinancing No. 1.

You'll notice this means refinancing isn't cheap. To make it worthwhile, there are some options you may want to investigate.

If you just refinanced within the last year, some lenders will agree to a "streamlined" refinancing, freeing the homeowner from having to get yet another appraisal done of their property and saving them $300 to $350, said Holden Lewis of Bankrate.com, a personal finance Web site.

Some lenders may be willing to let people who have already refinanced to modify their mortgages, lowering the rate in exchange for a fee of about $500, Lewis said.

The low rate now makes it increasingly possible for more homeowners to also consider changing the terms of their mortgages, say from a 30-year loan to 15 years.

The monthly costs will be higher than for a new longer-term loan, but the rates will be so much lower that some homeowners will find the costs of a new 15-year loan to be about the same to carry as the old 30-year loan. And the savings on interest payments over time can be impressive.