newjerseynewsroom.com

BY GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

Not necessarily.

There's a rule of thumb as to when mortgage refinancing makes financial sense. It's when the interest rate on the new mortgage is at least two points below your present mortgage interest rate and you plan to stay in your home for at least two or three years. With mortgage rates now hovering around 4 percent, many homeowners paying 6 percent or more should be reconnoitering the refinancing market.

The reason for the rule of thumb is the substantial costs usually involved in getting the new mortgage. Even with a lower interest rate on your new mortgage, it often will take you two or three years to get any overall savings from the lower interest rate. In other words, it takes time to "get even." The fees you pay for the new mortgage will eat up the savings from the reduced interest rate for several years.

You also have to check whether you have to pay a prepayment penalty on the early payment of your present mortgage. If so, this alone could sink the savings from refinancing.

Refinancing fees can be heavy, ranging from 3 to as much as 6 percent of the loan. They can include application fees, title search costs, credit report costs and legal fees. "Points" can add to the total, though sometimes recoverable by a more favorable interest rate.

If you can refinance with your present lender rather than a new lender, you may be able to save on fees. With your present lender, the title and credit reports obtained on your original mortgage may just have to be updated rather than created anew, reducing the lender's costs.

When you look for a new loan, be a Black Belt shopper for a combination of the best rate and lowest lender fees. A fast and easy way to begin shopping is to get rate and fee quotes on the web. Just enter "mortgage refinancing" on your search engine and you'll have plenty of places to begin.

By going to web sites you can get a close approximation of what your new interest rate will be and the amount of your closing costs. Knowing these amounts you can apply the rule of thumb to see if refinancing makes financial sense for you. Basically you want to determine how long it will take at the lower interest rate to recover the cost of refinancing. Be sure it's likely you will remain in your home for at least a few years after you hit the break even date so that the time and effort you spend in getting refinancing makes the savings worthwhile.

But be careful: when you go to the websites, it's "buyer beware." The sites generally are sponsored by lenders or mortgage brokers more interested in making fees than in your financial welfare and may be tilted toward getting you to refinance even if it's not beneficial for you. Some sites, for example, put the rule of thumb percent at 1½ percent or lower to entice refinancing and fee generation. And the calculators on the sites don't show you the after-tax effect of a lower rate.

Of course, your personal financial situation will have a bearing on the refinancing amount and interest rate that will be available to you — or even if you can qualify for refinancing. Factors that may have a significant impact are your credit score, employment history and current earnings, the market value of your home in excess of your current mortgage, whether you have a working spouse and your other assets.

If the financial stars align and you're ready to pull the trigger with refinancing, there's always one more nagging question for consideration.

Will rates fall further?

Gerald J. Robinson, Esq., formerly tax counsel to the New York City law firm of Carb, Luria, Cook & Kufeld, is a member of the New York and Maryland bars. He received his B.A. degree from Cornell University, an LL.B. from the University of Maryland and an LL.M. in Taxation from New York University. Prior to entering private practice he served in the Office of Chief Counsel, Internal Revenue Service. He is the author of the treatise, Federal Income Taxation of Real Estate, now in its sixth edition, and wrote the monthly newsletter, Real Estate Tax Ideas, both published by Warren, Gorham & Lamont. He is also a frequent lecturer and contributor to various professional journals.