When is the right time to refinance your home? It’s a lot more complicated than waiting for a drop in mortgage rates. (Getty Images)

When is the right time to refinance your home? It’s a lot more complicated than waiting for a drop in mortgage rates. (Getty Images)

Should you refinance? The answer always boils down to money

One thing you can forget is the rule of thumb about interest rates dropping a point.

With every downward tick of mortgage rates this year, it’s hard for homeowners not to wonder: Is it time to refinance?

While online refinance calculators can give quick and easy results, the answer is often more complex than what you get from those few mouse clicks.

So what about that rule of thumb — that interest rates have to drop by about a point for it to make sense?

“A totally ignominious statement by people who make it,” said Cristie Stapp, a senior loan officer for Guild Mortgage in Seattle. “They don’t give people credit for having a brain.”

The right answer for each homeowner depends on questions such as how much they can save each month and how much the refinance process will cost.

“No matter what, there will be a cost,” Stapp said. “If it’s going to cost them $3,000 and save them $50 a month, you know it will take five years before they’re saving money.”

Megan Grichel, 26, of Everett, is one homeowner who decided the time was right for refinancing.

When she bought her home nearly three years ago, she was required to have mortgage insurance, an additional cost that wouldn’t expire for years.

Over the last several years she made some improvements on her home — adding a patio, painting and installing air conditioning. And interest rates now are lower than when she bought her home.

Grichel got a tip from a friend that it might be time to check out refinancing.

Her fiance, David Vaughan, a branch manager for Freedom Mortgage, told her, “You can look elsewhere, but we have really competitive rates.”

Grichel said she’s about halfway through the refinancing process, but expects to save about $250 a month on her mortgage payment. “After only a couple of years, I was shocked,” she said about how much she could save.

The savings will come from dropping the requirement for mortgage insurance, as well as trimming about three-quarters of a point off her interest rates — to 3.625%.

Her advice to other homeowners: “You can always ask, and they’ll tell you whether it’s beneficial or not.”

Homeowners often assume that mortgage rates are tied to federal interest rates, Stapp said. In fact, those interest rate drops that get so much publicity can affect credit card rates, but only indirectly affect mortgage rates.

“So the Fed doesn’t control mortgage rates. It’s a great misconception that there’s a direct correlation,” she said. But decisions by the Federal Reserve to lower interest rates do affect the economy, which in turn has an influence on mortgage rates.

Laurel Knight-Keane, past president of the National Association of Professional Mortgage Women, is a branch manager with Freedom Mortgage in Lynnwood. The company plans to open an office in Arlington next month.

Knight-Keane said she expects interest in refinancing to increase after the holidays.

Figure out exactly why you’re considering refinancing — to lower your interest rate or to help pay for upgrades to your house, she said.

“Let’s say you bought the home and put minimal down, but you did some upgrades, your home value has increased and your credit score has gone up,” she said. You often can save money even if your interest rate is the same by getting out of an FHA loan and mortgage insurance.

Be wary of what are advertised as “no-fee” loans, she said.

“There’s never been a no-fee loan. There’s some way it’s being paid for,” Knight-Keane said.

Both she and Stapp said homeowners need to remember there are costs with refinanced mortgage such as title, escrow and recording fees — just like when you first purchased your home.

Understand that the credit score mortgage companies use as part of the loan application process will likely be different from what you see online at sites such as Credit Karma. The scores used as part of the mortgage application have a different way of computing the scores, Knight-Keane said.

“It’s just a very frustrating part of this whole business,” she said. “Sometimes there’s no rhyme or reason to what’s going on.”

Online estimators of the costs of refinancing mortgages are a starting place for people who like to tinker and do things for themselves, Stapp said.

“Then it’s time to reach out to somebody and ask all your questions and get some more exact numbers,” she said.

Anyone interested in refinancing should talk to friends and family members to get referrals to professionals who can assist them with the process, Knight-Keane advised.

“It’s very important to talk to an experienced loan officer to make the best decision for your specific situation,” she said.

Work with someone with whom you can have forthright conversations about your finances, she said.

“Don’t be afraid to ask questions,” Knight-Keane said. “It’s one of the largest things you’ll ever do financially. It’s better to ask than be surprised and go, ‘Oh, wait a minute. I didn’t know that.’”

Sharon Salyer: 425-339-3486 or salyer@heraldnet.com.

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