Refinancing Tips From the Front Lines of the Mortgage Mess

Tough Tips: Seven Rules for Refinancing

There's a slight thaw in the mortgage market, and what's heating up is refinancing.

"Might be doom and gloom for some people, but right now there's a lot of activity," said Keith Kantrowitz, president of Wall Street Mortgage Bankers.

"Business is up again," said Michael Moskowitz, a mortgage banker with more than 25 years of experience and president of Equity Now. "90 percent of business is refinancing."

With interest rates at historic lows, though, it's difficult to decide when refinancing is worth it.

So, "Nightline" asked for tips from some mortgage bankers who are on the front lines, as well as from America's financial guru, "the money lady," CNBC's Suze Orman. Her new book, "Suze Orman's 2009 Action Plan," is filled with tips about what people should -- and shouldn't -- do with their money right now.

And one thing to consider is switching a current home loan into one with a lower interest rate.

"Do the numbers," Orman said. "The numbers don't lie."

1. Analyze Your Finances

The first thing Orman suggests is to figure out monthly payments right now, then figure out what they would be at the interest rates being offered now. Orman gives an example:

"Let's say it's a $150,000 mortgage, you're going to refinance from about 6 percent interest rate to maybe 4.75 percent interest rate. And let's just say your payments are going to go down and you're going to save maybe $200 a month."

That sounds great, right? But there's more to it.

2. Do the Math

Orman continues with her example: "So you're now saving $200 a month, but it's going to cost you $5,000 to finance. You would divide the $200 you're saving into the amount of money, your closing costs -- the amount it's going to cost you to refinance -- and that will give you a specific number of months. If you're going to live in that house longer than the months it will take to recover the closing costs, refinance. If, however, you're not, don't refinance."

3. Compare Rates

The next order of business is to know what rates are out there. They will vary by lender, as well as by type of loan, and by how long the term of the loan is. Moskowitz says consumers should shop around.

"Unfortunately, people spent more time picking out their ties than they do on whether they should refinance or not," Moskowitz said.

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.

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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