Refinancing could save big money

HARLINGEN - Homeowners struggling to pay high-interest loans stand to save big money by refinancing their mortgages, mortgage brokers said Wednesday.

"One of the big things right now is refinancing," said Robert Becerra of MTL Mortgage in Harlingen. "We've had quite a few (homeowners) who are refinancing."

Interest rates that dropped below 6 percent make it feasible for many homeowners to juggle the cost of refinancing their mortgages, Becerra said.

Interest rates continue to fluctuate, but with rates last week dropping as low as 5.3 percent, homeowners with rates of 6.5 percent and higher should consider refinancing, Becerra said.

Refinancing becomes feasible when it cuts homeowners' interest rates by at least 1 percentage point, Becerra said.

"For anything less than a (percentage) point, it wouldn't be feasible because of the cost incurred," Becerra said, referring to the cost of refinancing.

But broker Velma Guerrero said interest rates should drop by at least 1.5 percentage points to make it advantageous to refinance.

Homeowners struggling to pay adjustable rate mortgage loans would likely save money by refinancing loans with interest rates that may have soared by as much as 17 percent, said Guerrero, a broker at Supreme Mortgage Co. in Harlingen.

For persons in a home that's worth less than the loan, it's probably too expensive to go after a cheap rate. For the deluge of locals who are still paying off subprime mortgages, refinancing is also likely not an option.

A homeowner who refinances to reduce a $100,000 loan's interest rate from 8 percent to 6.5 percent stands to save $100 a month, or $36,000 on a 30-year mortgage period, Becerra said.

Refinancing costs vary based on the amount of the loan, Becerra said.

In Harlingen, the average home sells for about $86,678, said Fructoso Gomez, chief appraiser for the Cameron Appraisal District.

On a $100,000 loan, closing costs on a refinancing can range from $3,000 to $5,000, Becerra said.

"It may take you the first two or three years to recoup closing costs but after that it's all savings," Becerra said.

The refinancing option, however, is available to a shrinking number of homeowners as banks increase standards for borrowing. In addition to proving a steady two years of income, banks are looking for a credit score above 600 for a standard loan and over 720 to guarantee the cheapest rates, lenders said.

Consumer credit is rated by scores ranging from 300 to 850. Most lenders regard scores above 700 as a sign of good financial health.

Scores below 600 indicate high risk to lenders and could lead them to charge a prospective borrower higher rates or even deny the credit application.

The paradox is leaving many people with adjustable rate mortgages, whose home prices have fallen, without an option, experts said. Many people took out those mortgages with high interest rates, expecting to refinance once interest rates fell or their own credit score improved.
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Monitor reporter Sean Gaffney contributed to this report.