Mortgage Rates Refinancing

" Refinancing Fumbles: as more homeowners take advantage oflow interest rates, overworked banks and mortgage brokers are making errors that could cost you money - Family Money "
Never mind baseball--with interest rates at near-record lows, refinancing has become the national pastime. In 2002, roughly $2.24 trillion worth of home mortgages were financed, and nearly 60 percent of those mortgages were refinancings, according to the Mortgage Bankers Association of America. Homeowners are so giddy about the savings they anticipate from a lower interest rate that some forget to check over the final paperwork .............
.... and mistakes do happen. So many people in the past couple of years have applied for either a home loan or a refinancing, that lenders have barely been able to keep pace with the demand.
"It's completely overwhelming all aspects of the closing process," says Jonathan Levy, vice president of Professionals Title & Escrow Company in Rockville, Maryland. A 1996 study of 2,031 banks by the Federal Deposit Insurance Corp. found that three-fourths of the banks surveyed had violated some aspect of the Real Estate Settlement Procedures Act, which requires lenders to fully disclose their fees. And that study was done before the current tidal wave of applications hit.
It's gotten so hectic that Levy knows a woman, one example among many, who was recently told by her lender that it would take 90 days for her to close on a refinancing of her mortgage, rather than the typical 30 days in less chaotic times.
To help deal with the workload, mortgage banking and brokerage companies added 44,000 jobs in the first nine months of 2002 alone. But many of these new hires are either inexperienced or are temporary employees with no banking background. Errors are bound to occur; promises are apt to be forgotten. Don't expect banks to catch these glitches. But you can. Here's how.
RESEARCH YOUR CREDIT Errors on your credit report can affect the interest rate you receive. Each of the major credit bureaus can provide you with your own report for a fee, or Web services such as www.freecreditreport.com will let you order a free report as part of a trial membership to their credit monitoring service. Check the report carefully. If you spot an error, you'll need to contact the major credit bureaus to correct it (Web sites that give you access to your report can also guide you through this process). At the same time, you'll have to let your lender know about the error, avoiding the chance it might affect the rate you've been quoted.
CHECK YOUR APR. The annual percentage rate (APR) is what you will pay on your loan every year once certain fees are factored in. Always check it to see if it is significantly higher than the good-faith estimate you should have received when you agreed to the loan. Be prepared to ask for an explanation of any change.
QUESTION FEES. Scan your paperwork for any charges listed as "underwriting," "document preparation," or "administrative fees." Mortgage experts say such charges are often negotiable because their main purpose is to help lenders cover their costs on the loan. "If you ask enough questions, you may be able to find which fees can be used as bargaining chips," says Holden Lewis, financial reporter and spokesman for Bankrate.com, a Web site devoted to helping consumers make informed financial decisions. At the same time, realize that many fees, such as those for obtaining your credit report and a home appraisal, are a reasonable cost of doing business.
KEEP AN EYE ON YOUR ESCROW PAYMENT. Escrow is money your bank holds to pay for a year's worth of taxes and other fees (such as insurance). Make sure you know when your property taxes are due so that the lender doesn't collect too much or not enough money from you to cover tax payments, Levy advises. Some lenders don't require an escrow. That means you're responsible for having the money ready when taxes are due, but you can collect any interest if the money is kept in a savings account. If you have self-discipline, it's worth considering.
USE YOUR GRACE PERIOD. Whenever the topic of mortgage math errors come up, consumer advocates have always recommended comparing your good-faith estimate of closing costs with the actual one that showed up in your HUD-l, an accounting of your final closing costs. That document, by law, is supposed to be delivered to you 24 hours before closing.
"The problem is, lenders are so deluged with applications, they are quite literally giving us loan documents the day of closing," Levy says. That's not enough time to study the costs. But don't fret. After signing the papers, by law you have three business days in which you may cancel the deal. So if the numbers don't match and you feel you've been rushed into a financial arrangement other than what was promised, you can always walk away.
MORTGAGE MODIFIERS
If the lender who provided money for the initial purchase of your home still holds the mortgage, ask if the company will modify rather than refinance your loan, suggests Holden Lewis, a financial expert with Bankrate.com. If you can negotiate a modification rather than a refinancing, you'll save money because you won't be creating a new loan with all the fees that accompany it. By modifying the existing loan, the lender gives you a reduced interest rate, same as if you were refinancing. But the time to pay off remains the same as what you had with the original loan. So if you bought your home three years ago with a 30-year fixed mortgage, you'll still have 27 more years of payments. With a refinancing, the pay-off time rolls back to 30 years again.
If your original lender still holds the mortgage on your home but has a policy against loan modifications, ask about a streamlined refinance loan that may eliminate the appraisal, or ask for a break on some of the fees. Lenders may be amenable to this because they have done business with you before, and don't want to lose you to a competitor.