Tips For Consumers Refinancing Their Home

While it typically takes about 45 days from the time of application to get to closing, delays of two months or more can occur. Look for a lock-in that lasts for 60 days or more. There should be some lenders in your area willing to offer a 60 day "lock-in" for free.

Be careful, however. The loan officer may say the lock-in is free even when a fee or a higher rate is charged for the lock-in protection.

KNOW YOUR RESCISSION RIGHTS

If your deal turns sour at closing, consider starting over. You have three business days from the date of closing to mull it over. If you decide to reject the deal, you must notify the lender in writing within the three-day period. The lender then has 20 days to return your fees.

DON'T ASSUME YOU WON'T QUALIFY BECAUSE YOU HAVE LITTLE EQUITY IN YOUR HOME -- BUT CHECK YOUR COSTS CAREFULLY

Many lenders require that you have at least 10 percent equity in your home (i.e., a loan-to-value (LTV) ratio of 90 percent or less). But we found at least one lender in every market that was willing to underwrite loans in which the borrower had only 5 percent equity in the home. Beware, however, that low equity loans can involve relatively high mortgage insurance costs.

You may only qualify if your current loan is owned by Fannie Mae or Freddie Mac. You can find out if your loan is owned by these organizations by calling the company to whom you send your monthly payments. That company may not own the loan, but it can find out whether the secondary market agencies do by searching a computerized database.

MAKE "APPLES TO APPLES" INTEREST RATE COMPARISONS

Make sure you compare interest rates using a constant number of points. An 8 percent rate tied to 2 points is a lot more expensive than an 8 percent rate tied to 0 points.

When faced with the need to compare different rate/point combinations among lenders, consumers should first convert each quoted rate to one based on a constant number of points and then find the lender with the lowest rate. In making this conversion, consumers should use a traditional rule of thumb that equates each point to a 1/4 of 1 percent change in the interest rate. This would make an 8 percent loan with 0 points equivalent to a 7.75 percent loan with 1 point.

DON'T JUDGE A LENDER BY ITS APPLICATION COSTS

Lenders who lure you with no costs at application can lay the fees on heavily at closing. Keep your eyes focused primarily on the interest rate and points.