Smart Moves by Ellen James Martin

How to Get the Best Refinance Deal

Turmoil in Europe and political upheavals elsewhere are translating to very favorable mortgage rates for Americans. Such factors -- combined with still-rising home values in many real estate markets -- are tempting more U.S. homeowners to ponder mortgage refinance.

"Strong borrowers are now eligible for amazingly low rates," says Keith Gumbinger, a vice president at HSH Associates, which tracks the mortgage market for consumers.

Indeed, some homeowners are even considering a cash-out refinance -- an idea that was virtually unthinkable in the immediate aftermath of the 2008 crash.

Gumbinger cautions against drawing cash out of a home through a mortgage refinance (or a home equity line of credit) without serious plans for the money's use.

Scott Lanoff, the president of a small mortgage brokerage firm, says many homeowners plan to take advantage of the current low mortgage rates to pay off credit card debts. Whether that's a good idea depends on the borrowers and their level of self-discipline.

"If you're taking money out of your home equity for debt consolidation, you'd better have a solid strategy to avoid the temptation of running up those credit card balances again in the future," Lanoff says.

Here are a few pointers for those seeking to refinance:

-- Assess your credit standing before starting the refinance process.

There are several reasons why your application to refinance might be rebuffed. Perhaps you recently left a steady job to form your own company but don't yet have tax records showing strong income from the new business. Or maybe in the recent past you had to take an extended leave from your job for personal or medical reasons.

Another factor limiting mortgage market access involves what Gumbinger calls a "a severe deterioration of credit." This could result from late payments on your mortgage or a delinquent student loan.

The most common indicators of credit worthiness used by mortgage lenders involve credit scores. Lenders assume that the higher your score, the less risk you represent to those who lend you money.

Credit scores typically range between 300 and 850, and if you rank low it could severely hinder your chance of refinancing to a lower rate.

"At the very least, you'll probably pay a higher interest rate and more fees to refinance if your credit score is subpar," Gumbinger says.

Still, he says many homeowners with a few credit blemishes are actually surprised to find that their scores are higher than they'd expected.

Under federal law, consumers have free access to credit reports on a yearly basis. Alternatively, you can purchase credit reports and score information through the three major credit bureaus (TransUnion, Experian and Equifax) or by going to the website of Fair Isaac Corp. (

Gumbinger says you can easily find out if you're eligible for a lower rate by calling a few mortgage lenders and telling them your current scores.

"If you know your numbers, you're less likely to get bamboozled into paying too much to refinance," he says.

-- Look for lender quality as well as favorable rates.

"Within reason, I would leave no stone unturned in looking for the right place to refinance," Gumbinger says.

Some homeowners are comfortable using a lender from a faraway state that they've found through the internet. But Gumbinger says those who are anxious about the process are often more at ease with a nearby lender.

"It's important to realize that rates are quite uniform throughout the country. So you're not necessarily going to get a better deal from a lender in a distant location. In addition, you'll probably have a happier customer service situation locally," he says.

One obvious way to search for a customer-friendly lender is to ask friends, neighbors or work associates about companies they've used and liked. Or you can seek out referrals from the real estate agent who sold you your present home. Agents usually keep a short list of lenders whom they've found to be reliable.

-- Begin with the use of online resources.

As a starting point, Gumbinger is a big fan of the online information available to mortgage hunters.

You can use online calculators to adjust for different factors, including the amount borrowed and the full term (duration) of the loan.

"Calculators are terrific for comparing various refinance scenarios," Gumbinger says.

One of many websites offering free online calculators is that of HSH Associates (, Gumbinger's firm. Through it, you can also buy the results of a comprehensive weekly survey of mortgage rates available through lenders that serve your area.

Another popular source for refinance information is

-- Know your own power as a strong mortgage refinance customer.

Homeowners with the income, credit standing and equity to qualify for the lowest available rates when they refinance should expect lenders to compete for their business and treat them well, Gumbinger says.

"If the lender pulls a bait-and-switch tactic at any point along the way to closing, you'll want the ability to simply walk away. Remember that as a highly qualified borrower, you're in the catbird seat and deserve complete respect," he says.

(To contact Ellen James Martin, email her at