Rough seas of rates: It's sink or swim in rush to refinance mortgages

Wave after wave of mortgage refinancing customers have flooded the U.S. mortgage market in the past year, a trillion-plus phenomenon driven by interest rates sinking to their lowest levels since 1966.

The big question for new loan seekers: How can you avoid being left high and dry?

"Volume is high, and it's been high since October 2001. We're seeing people on their third refinance this year," said Tracy L. Delimat, president of Wisconsin Mortgage Bankers Association and senior vice president of St. Francis Bank. "Some people are in a rate war with their neighbor. The neighbor says, 'I got such and such a rate,' and they say, 'Well, I'm going to get that too.' "

Few consumers remember the last time a 30-year mortgage was 6% -- May 1966, according to bankrate.com -- but they clearly realize these are uncommon times.

"Greenspan cutting the prime gets everybody excited. Everybody thinks rates will go lower," even though the mortgage market is not tied to short-term interest rates, said Todd A. Langeness, president of Great Lakes Mortgage Corp. in Milwaukee.

Long workweeks have been the mortgage market's norm for a year.

"Our back-room staff is literally a 24-hour-a-day operation," said John A. Inzeo, assistant vice president and production manager of Wisconsin Mortgage Corp. in Brookfield.

Backlogs are common among underwriters, appraisers, title companies and other loan processors. That has made the industry's 30-day rate lock -- lender and borrower agreeing on a particular interest rate, at a specified cost, if the deal closes within that time -- an endangered species. Today, 45-day locks are the norm.

"Even when you do everything in your power to plan and coordinate, one little glitch can hold everything up," said Cathy Savhelio, president of Wisconsin Mortgage Brokers Association and senior loan officer at Ideal Financial Services in Brookfield.

To avoid the glitches, mortgage-makers advise:

Know what you want, and why.

"People say, 'I just want to save money.' Well, we know that. What are your goals here?" Langeness said.

A long loan term, with its lower monthly payments, may be best for a family with young children and a lot of budget demands ahead. A short loan term pays off principal much faster. A three- to five-year adjustable-rate mortgage, which typically carries the lowest rates, may be most suited for borrowers who intend to move before the term is up.

Know what you have.

That includes federal W-2 tax return forms for the last two years; the latest, complete bank account statements; quarterly or monthly statements for investments such as 401(k)s, brokerage accounts and mutual funds; pay stubs for a month; homeowners insurance papers; and, for a refinance, the most recent property tax bill. A subordination agreement is needed for any second mortgages outstanding.

"It's amazing to me how much people throw out. Most don't even keep bank statements anymore," Inzeo said. Customers can get missing financial papers, but there's invariably a charge and a wait.

Tell the truth -- the whole truth -- about debts."

It used to take a couple weeks to find the flaws in someone's financial picture. But now, with everything automated and online, we can see right away that someone's forgotten to mention these five loans they have," Delimat said.

Don't be blinded by the rates.

Refinancing doesn't always make sense. "If it's a 0,000 loan, a half-percent change can add up to some big money. But if it's a ,000 loan, you need a bigger change in rate to justify the costs," Langeness said.

"Ask about the costs. In today's market, the range is 0 to ,000, depending on how you structure the deal. If you're only going to be in the house two, three years, maybe it's not worth it," Inzeo said.

Realize the risks of gambling.

"It's been a volatile market and there's been pretty much no way to predict what's going to happen. If a certain rate is going to put you in a better position, I say: Lock it in!" Savhelio said.

Understand the risks of trying to outsmart the pros.

Some consumers lock in loans with several lenders, expecting to cherry-pick the best deal at the last minute.

Alex J. Hoffmann, president of Universal Savings Bank and USB Home Lending in Milwaukee, warned: "The large aggregators that most lenders sell to are matching all borrowers names for duplicate locks. If this happens, the borrower could lose the lowest rate lock."

Make the lender commit, on the record.

"Ask the lender for a 'no excuses guarantee' to be sure that the loan can close before your rate expires," Hoffmann said. "Pay an application fee to guarantee the low rate."

Make sure the rate lock is secure regardless of whether your lender sells the deal to another lender, he said. Otherwise, "they could have a hidden incentive not to get your loan closed on time."

Stay in touch and don't dilly-dally on your responsibilities.

"If you get a phone call from your loan officer, return it promptly. Provide requested items quickly -- within a day would be great. Get appointments scheduled quickly with the appraiser and, if you're purchasing a home, a home inspector," Savhelio said.

Mortgage-makers say they have learned from their own mistakes in last year's opening weeks of this refinancing boom and applications are now flowing more freely.

"We've all been at this so long," Delimat said, "that we've really gotten efficient."

CONSIDER

Does the deal add up?

Bankrate.com, which offers an online mortgage calculator, advises those mulling a mortgage refinance to consider:

How many months it will take to recoup the costs involved

How long you will keep the house

Whether the original lender might agree to a mortgage modification -- dropping the rate for a few hundred dollars without the related paperwork

The waiting time in a mortgage business boom.

For another way to calculate when refinancing is worth the cost, see "The Mortgage Professor" online at www.mtgprofessor.com

CLOSING COSTS

Don't consider only interest rates in weighing a mortgage refinance or shopping lenders. Mortgage closing costs can add ,000 or more, negating any savings if the homeowner sells within a short time.

In metro Milwaukee, typical fees range from 0 to ,000, lenders say. By law, lenders must provide a closing cost estimate within three days of a mortgage application.

Related links:

1. Low interest rates have homeowners beating down bankers' doors; Mortgage mania
2. Low Interest vs. Refinance Option
3. What you should consider before refinancing loan