AS OIL PRICES CONTINUE TO DROP and concerns about the global economy weigh on investor confidence, the value of treasuries continues to climb, moving interest rates down to levels not seen since the summer of 2013. Which seems to indicate that there could be another opportunity to refinance for the folks who were not able to do so when rates were at their previous lows.

To top it off, the Federal Housing Administration announced last week it will reduce mortgage insurance premium (MIP) fees by 50 basis points. This is the equivalent of a one-half-point interest rate drop for FHA borrowers. This drop in MIP could benefit thousands of FHA borrowers when combined with current interest rates.

You can just imagine how lenders are chomping at the bit to get in on a fresh new round of refinancing. Which means, folks, you need to be careful, as it seems that with every opportunity there are sharks in the water who can’t wait to take a bite out of unsuspecting folks eager to save a few bucks.

There are a few things to consider before you sign on the dotted line. First, when does it really make sense to refinance?

With some fairly basic calculations you can guesstimate your monthly payment savings. If you have a loan of $300,000 and the current rate is 1 percent less than what you could get by refinancing, you will save roughly $300 a month. If you currently have an FHA loan, thanks to the MIP savings you would only need a rate drop of 0.5 percent to achieve the same monthly payment savings.

Told this, most folks then ask, How much does it cost? And like any good attorney I say, “It depends.”

Typically, by the time you add up lender fees, appraisal, title and escrow costs, a refinance costs you about $3,000. This figure can go up substantially if you pay points to buy down your interest rate, or it can be eliminated entirely if you take a higher rate and have the lender pay your closing costs for you. In most cases the closing costs can be wrapped into the new loan so you don’t have to come up with a lot of money to close the deal.

Next, be really careful of lenders offering no-fee loans. Many times these lenders are really offering no lender fees, which in a typical scenario is only a fraction of the actual costs.

The next two things to consider are time: how long you plan to stay at the property, and how long you have had your current loan.

If the refinance costs $3,000 and you will save $300 a month, then the refinance pays for itself pretty quickly. But not so fast. You also need to consider the number of years you are adding to your loan. If you have been in your loan for 10 years and now are considering refinancing into a new, 30-year loan, you will be adding a lot of payments, so what might seem to make sense might really be a bad idea. Consider a shorter term, such as a 20- or 15- year mortgage.

Make sure you are comparing apples to apples. There are a lot of folks offering short-term fixed-rate loans, i.e. they are fixed for the first five or seven years but then become adjustable-rate loans. Typically, if you receive an offer for a 30-year fixed below 3 percent, the lender is really trying to sell you on one of these short-term loans.

This type of financing could be appropriate for you if you know for absolute certain that you will be selling the property within the initial term. However, you need to be aware of your risks — what happens if, for some reason, you don’t sell the property? What is the potential interest rate and corresponding payment increase if you don’t sell?

Just be careful; make sure you are working with a trusted source. If you feel like you are getting the bum’s rush or not getting your questions answered, find someone who will take the time to explain your options.

Now, as always when I mention rates, terms or programs in this space, my compliance folks start getting nervous. I can’t really blame them as it is their job to protect me and the company I work for — so just in case you didn’t already know, this column is, was, and will forever be intended for informational and educational purposes only.

Any mention of programs, terms or rates is solely for illustrative purposes, and is not intended as an offer to lend.

Guy Benjamin (CAL BRE License #01014834, NMLS 887909) writes a weekly column for The Herald, offering general information on real estate matters. As it is impossible to address all possibilities and variations, he will try to answer individual questions by readers who contact him at 707-246-0949 or guyb@fairwaymc.com.height=”150″ />

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