Bloomberg Personal Finance
March 15, 2003

Refinancing: Is It Time to Take the Plunge?

MODERATOR: How low can they go? Interest rates on a 15-year mortgage dropped below 5% for a time this week. Are you missing the boat if you don't refinance now? We'll have some expert advice ... on Bloomberg Personal Finance.

With the average interest rate on a 15-year mortgage dipping below 5% for a time this week, the mortgage refinance market continues to rage. How important is it for a homeowner to take advantage of this opportunity? Michael Moskowitz is president of Equity Now, a direct mortgage lender. He joins me now with some advice.

We take a look at this market and the rates continue to drop, although there's natural fluctuations throughout the markets here. A lot of people are asking themselves is this a good time to take the plunge, even if they've already done it once already.

MICHAEL MOSKOWITZ: In many cases, it's an excellent time. Depending on the size of your mortgage, if you have a four or five hundred thousand dollar loan and the rates are down by a half a percent, you should open up an Excel spreadsheet, take a look what it costs you to refinance, how many months it'll take to recoup and go from there. Try to make a deal with the lender. Many deals are available that you can negotiate.

MODERATOR: Some people would prefer to stick with the lender they have. Others may have had their mortgage sold in the market two or three times and they have a lender they never dealt with before and they ask themselves well, you know, what should I do in that case. When it comes to running the numbers and making the decision about whether a refinance is best for them, what are some of the criteria for people who may have just refinanced a year ago?

MM: Well, the first thing you should do as a borrower is call your current lender and see if a modification's available as opposed to a refinancing. A modification will cost you a couple of hundred dollars for the legal fee and you just get your rate lowered. It's wonderful. Many lenders do it, many don't.

MODERATOR: Now, you don't know until you ask, right?

MM: You have to ask and you make sure you don't speak to, uh, speak to the supervisor if the person on the phone doesn't know it because many times it's being done and not everybody in the company knows about it.

MODERATOR: Because it's such a competitive market right now, they want to keep you.

MM: They want to keep you and instead of, let's say you're paying 6-1/4, the market rate is 5-1/2, they'll lower you to 5-5/8, 5-3/4 without the hassle, without the costs. It may make sense to you.

MODERATOR: And you avoid the complete revamping from an old mortgage to a new mortgage in the full refinance.

MM: Yes. It's usually a couple hundred dollars for legal fees.

MODERATOR: And the costs related to that, a complete refinance, can be prohibitive.

MM: Completely gone and the hassle and the time is gone.

MODERATOR: Do you have a concern about a housing bubble here and the effects on folks who perhaps bought a $200,000 home, now it's worth 400,000 and they've taken all that equity out and they may not be able to get it back later?

MM: As a lender, that's exactly the person we worry about. Because somebody who bought it for 200, borrowed 350 today - if times get tough, he or she may just walk away because they have no equity in it that they put in.

MODERATOR: So there's a real concern about defaults out there.

MM: It's a huge concern and the more real estate keeps going up, the lenders feel, I know I feel it has to come down one day. It's already beginning to show in some places such as eastern Long Island, second homes are beginning to be soft, to drop.

MODERATOR: And there's an important distinction between refinancing for a lower interest rate and refinancing to take a bunch of cash out.

MM: Yes. Most of the business that my company actually does is refinancing to lend people money for business needs, to pay off credit cards and that's a steady business. Those people have a need to refinance, that business should be there no matter what.

MODERATOR: A lot of people are talking about lowering their debt in this time because they don't know what's around the corner. People should be taking a look at their financial situation in that way. Michael Moskowitz, thank you very much. CEO of Equity Now and you've been watching Bloomberg Personal Finance. That's going to do it for us. Thanks for watching. I'm Lane Pejardi in New York.