People are refinancing - again and again

Many homeowners are feeling a tad richer after refinancing -- some again and again -- thanks to the Fed's never-ending efforts to drive down interest rates.
Call it the refi redo.

Some homeowners nationwide are in the unusual spot of refinancing a couple of times in the past few years. The saga could continue in the months ahead, after the Federal Reserve's extra efforts to keep mortgage rates low.
"It makes all the sense in the world," said Greg McBride, senior financial analyst for Bankrate.com.

Some borrowers can save money when they spot a rate that's at least half a percentage point lower than their existing rate, experts say. More typically, people tend to move when they see more than a full percentage-point drop.

Robert Traviss, 48, refinanced earlier this month -- the second time in four years -- and saved roughly $150 a month.

Traviss, who lives in Monroe, Mich., and works at a utility company, said the he and his wife started with a rate around 8% in 1999, refinanced to about 6% in 2008, refinanced again in September, and now have a rate at 3.75%. 

The couple, who owe $112,000 on their mortgage, pay extra each month so they're not just refinancing and dragging out the mortgage another 30 years. 

"It's kind of a no-brainer to save $200 when everybody's hurting these days," he said.
Take another example: Say a homeowner refinanced a $200,000 mortgage in January at a rate of 4.25%. If that homeowner now refinances to 3.7%, McBride said, he or she would save $63 a month. The monthly mortgage payment would drop to $920 from $983 a month.

To be sure, we're not talking about the highflying days of refinancing when people grabbed thousands of extra dollars out of the house to pay for cars, trips or other goodies.
Data from mortgage giant Freddie Mac showed that in the second quarter of this year, 23% of homeowners who refinanced reduced their principal balance during the process, and 59% maintained the same loan amount.

The percentage of borrowers keeping about the same loan amount was the highest in the 27 years of tracking. 

Naomi Pennington, 69, who lives outside of Houston, didn't want to tap into equity when she refinanced in September.

"Who would want to owe more money?" she said. Instead, she refinanced to drop her rate by about three percentage points to 4.25%. She's saving $300 a month on the payment. It's her second refinance in five years. Refinancing only makes sense to her if you don't end up owing more money.
These days, some homeowners who refinance might bring extra money to the table to be able to pay a little more toward what they owe, said Joel Gurman, vice president of mortgage banking for Quicken Loans. 

As people refinance for the second go-around in a few years, Gurman said, some might opt to go with a shorter-term mortgage, maybe 20 years or 15 years, to save money in the long term. Quicken has a product called "Yourgage" that has a customized term ranging from eight years to 29 years.

Refinancing, of course, is a math problem -- how much will it cost you to refinance to save X amount of dollars? How long will it take you to recoup the costs?

"Refinancing does have costs," said Kathy Conley, housing specialist for GreenPath Debt Solutions, a non-profit HUD-approved housing counseling agency.

It might not make sense for someone in their 80s to spend $4,000 upfront to save $50 a month, she said. Others can look at their costs, how long they plan to remain in the home and explore various types of loan products. Talking to a housing counselor in advance can help work out the numbers. 

Mark Stevens, a regional sales executive for Bank of America overseeing Michigan, Ohio and upstate New York, said he's seeing more daily refinance applications now than in the previous month -- thanks to the Fed's latest move.
"People are more focused on how do they improve their situation and not increase debt," Stevens said. 

His advice to consumers is to not rule anything out. Some federal programs covering Fannie Mae and Freddie Mac mortgages allow for refinancing even if the homeowner owes more than the house is worth.

"Don't think that you can't do it," Stevens said.
What works -- and what doesn't -- for a refi redo:
Some people who refinanced a year or two ago might not qualify for refinancing again.
For example, what if both the husband and wife worked in 2010 but one retired or lost a job this year. If only one person instead of two is working, their income would be much smaller than when they took out the loan, and they might not qualify again. If the debt-to-income ratio is now above 40%, that becomes a red flag for the lender, said McBride.

Some who recently became self-employed could face roadblocks, too.
A homeowner needs a job or income. The refinance application could be turned down if you're now out of work.

A homeowner who owes far more than the house is worth is still not going to be able to refinance with a traditional mortgage. Their best bet would be the Home Affordable Refinance Program. But if you've already refinanced once under that program, you cannot refinance with it a second time.

Most experts say homeowners should start with their original lender to see about any streamlining options for that refinance. But it's key to compare options at various lenders, too.
The good news is that many homeowners have time to shop. 

"There's no deadline pressure. The Fed's not going to increase rates tomorrow afternoon," said Keith Gumbinger, vice president for HSH.com, a mortgage-information website.
"Not for a bunch of afternoons."  Susan Tompor, USA TODAY

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