Refinancing Tips From the Front Lines of the Mortgage Mess

Moskowitz says consumers are seeing incredible rates at the moment. "People are looking at rates they haven't seen since the 1960s and 1950s," he said.

Personal finance expert Suze Orman offers tips about refinancing mortgages.

(ABC News)

The old rule of thumb used to be that if a rate could be lowered by 2 percent, it made sense to refinance. Moskowitz says that's wrong, depending on how large that loan is.

"Basically, if you have a $400,000 loan and are in a low-closing-cost state, it may make sense to go from 5.5 percent to 5 percent because you are saving $2,000 a year," he said.

Ormon says it's important to know the "true cost" of getting a loan.

"Always look at your closing costs, divide the amount of money you'll be saving per month into that closing cost, and then you will know," she says.

Many mortgage brokers agree that if the costs of the closing can be recouped in 12 to 16 months, and the owners plan on staying in the house that long or longer, it's a good idea to go ahead with the refinancing.

4. Fix the Rate

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In the past when rates were higher, many homebuyers went for adjustable rate mortgages. But now, with the market in free fall, lenders say homeowners are looking for stability. Exotic mortgages are out. Borrowers are opting for traditional fixed rate loans.

"A lot of people want to get in to more stable mortgages, 30-year fixed mortgages," said Kantrowitz.

"People who have adjustable rates, if they are going to live in the house for a year or two, might consider staying with them because chances are they are adjusting to very low rates today, Moscowitz said. "If they are going to live in the house long term -- five, 10, 15 years -- they should consider locking in a fixed rate."

5. Choose the Length of the Loan

If a fixed-rate loan is chosen, then a decision has to be made on how long that loan should run. Thirty, 20 or 15 years?

Orman says that if homeowners can afford the shortest length, they should go for it.

"If you have a 30-year fixed at, let's say, 6.5 percent interest rate and you could refinance to a 15-year fixed at 4.5 percent or so, you should do it immediately," Orman says. "Please know, if you can afford a 15-year fixed-rate mortgage, interest rates on 15-year mortgages are usually half a percent less than a 30-year. So if you can afford a 15, go for it."