refinance mortgage
When Kara Hartz, a 31-year-old schoolteacher, moved to Evansville, Ind., with her husband in 2008, she was intimidated by the high 5.8% interest rate on their 30-year fixed-rate mortgage. But it was better than staying in her quickly depreciating home in Tampa as she and husband started a family.

Hartz also has hefty student loans that she hopes to pay off before their kids -- they now have three, ages 5, 3 and 1 -- are out of the house. Things were tight.

But now that mortgage rates have dropped to all-time lows, Hartz and millions like her are taking advantage of the chance to get some more financial breathing room.

Although the common wisdom holds that there are more hoops to jump through now in the refi process, and that the underwriting standards are more stringent, applications for refinancing are way up: Total mortgage applications soared 17% last week and the refinance index jumped 22%, according to the Mortgage Bankers Association. But still a lot more people could be refinancing than there are currently.

Last year, 35% of the 50 million U.S. mortgages out there qualified for refinancing, according to Credit Sesame, an online saving platform. That's 17.5 million households that could apply to refinance. But only 4.5 million did so -- meaning almost three-quarters of those who could hadn't tried. Further, Credit Sesame found that people are overspending by an average of $5,748 a year on their mortgages, because they're not carrying the best one for which they'd qualify. The average Joe could have fully funded his IRA with the money he'd save by refinancing.

So why aren't more people following the Hartzes back to the bank?

It comes down to psychology and behavioral economics: People are unmotivated, scared or uninterested. But these sentiments are often rooted in misconceptions about the difficulty and value of refinancing.

Myth 1: Times Are Too Hard to Refinance

The economic environment and the real estate market's troubles have cut into Americans' finances on the income side, but they're also sapping our motivation to search for savings on the debt side, according to Kelli Dudley, an attorney who teaches real estate and civil litigation at Chicago's DePaul University School of Law.

"The mortgage foreclosure fiasco has had a major mental health cost for consumers," Dudley said. "It is difficult to make economically rational decisions when the underpinnings of home ownership have been shaken. In short, consumers no longer trust lenders and see them as the enemy."

The ongoing gloomy reports of underwater homeowners, foreclosures and robo-signing scandals have undermined trust in banks.

That, in turn, can lead people to give up hope of financial relief, and make them think a refi effort would be futile or even detrimental, said Dan Ariely, a professor of psychology and behavioral economics at Duke.

"One of the things about trust that has been largely lost in the last few years is that people might worry more about the small details," Ariely said. "People are looking at this small print in different ways, and are very cautious that this is ... not going to be good for them. Mortgages have been tainted."

The Hartzes were in precisely that postion as they hemmed and hawed at the prospect of refinancing.

But if homeowners haven't refinanced even in the last six months, said Credit Sesame's marketing VP Irene Shubladze, they are foregoing a lot of savings.

Myth 2: The Process Is Too Painful

"Refinancing mortgages can be daunting, and it's difficult to get to simple answers," Shubladze said. "You're looking at APRs, and interest rates, and then you need to figure out how many years you're going to stay in the house."

Plus, there's the time investment of shopping for deals, reading the fine print, gathering the required paperwork and sending in documentation, and paying lender and attorney fees. Lenders have also tightened up underwriting in response to criticism about "low-doc" and "no-doc" loans, Dudley said.

Hartz dreaded that fiscal and existential probing. Beyond that, she was directing a musical at her middle school and putting in 12-hour days, and initially thought the process would be too burdensome for her to see it through. Nonetheless, with help from Credit Sesame, this March, she traded in the 5.8%, 30-year fixed-rate mortgage for a 3%, 15-year loan.

The Hartzes' payments are $100 more a month than they were previously, but by shaving some 11 years off their payoff timeline, they'll save around $50,000 in interest over the life of the loan.

"It gives us peace of mind," Hartz said. "Before our kids go to college, this house could be paid for."

"The market is tight, and [refinancing a mortgage] is not an easy process," Shubladze said. "But if you look at how much money you can get back, then the effort will be worth it."

Also, because there are mortgage refi loans available with no closing costs, there's no disincentive to refinance to save even 1% or less, according to Pete D'Arruda, president of Capital Financial Advisory Group in Cary, N.C.

"The busiest person in the world should be the mortgage person," D'Arruda said.

Myth 3: Investing Is the Better Way to Make Money

Like the gym rat who constantly works his biceps but neglects his core, many people focus too much on trying to increase their wealth by managing their assets, but neglect to address their liabilities. Saving money via methods such as improving your credit score or refinancing your mortgage just aren't the instinctive go-to strategies for boosting our financial strength.

They should be.

"There's a lot of overlooked savings, because people are looking at assets and diversifying their assets, and not taking advantage of savings on the liability side," Shubladze said. "Investing is something that's been drilled into our head. The news doesn't address the other side of the balance sheet."

When you're investing, the most you can typically hope for is to win against the market by 10%. But that's a lot more work than saving $5,000 on your mortgage, which (once you already own the home) comes with little added investment risk.

"Everyone wants to brag and find that next Apple," D'Arruda said. "I'm amazed at how much risk people are taking. They're climbing the equivalent of a 30-foot ladder with no one holding it."

People want to keep up with the Joneses by growing their assets, D'Arruda said. And it's true that even young professionals from Gen X and Gen Y are fearlessly wading into treacherous investment waters.

"We're chasers by nature," D'Arruda said. "Back from the cave man days, it's in our genes to hunt and gather when we should be inside conserving what we've gathered."

But What If I Don't Qualify?

Though more people should be filing applications to get better rates, there are many who aren't good candidates to secure a refinance right now. Those who can't get one yet would do well to improve their credit scores by following this advice and avoiding these pitfalls. If rates stay low, taking a long view on the problem of mortgage debt -- rather than letting intimidation and gloom keep you from trying -- could lead to serious savings later.

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Wrong about Myth #2. It is extremely painful, and corrupt.
I have searched for articles online describing this situation but it is not well documented.

My story: Given a rate lock of 60 days sounded pretty safe to me. I honestly have a credit score of 850 and provided all documentation in a timely manner. There would be no reason I wouldn’t be approved for this loan.

After thinking things were pretty safe as I hadn’t heard from my Loan Documentation Specialist for quite a while, suddenly at day 50 into the process I received a request for six additional items. Although I felt certain that what I provided was adequate and in a timely manner, I was informed that we would not be able to close within the 60 days. The impact would be that it would cost me an additional $458.00 to extend the lock for 15 days.

This is where my loan stands now, but what would keep the lender from discriminately extending it another 15 days at an additional cost of $458.00? And so on? My research reveals that sometimes when rate lock dates expire lenders revert to the current rate. If rates are rising this can cost the consumer additional costs in the thousands of dollars. All the lender has to do is let the rate lock date expire. Banks appear to have the flexibility to set their own rules. If rates are falling, hurry and close the loan. However, if rates are rising just give excuses (or just blame the consumer for any of a number of made-up reasons) for not closing within the lock period.

If the lenders have no responsibility whatsoever to uphold and meet these rate lock dates, what option does the consumer have?

Let’s look at this even more simplistically. Why would a lender purposefully lock in a rate for you that's going to expire? Here are the possible scenarios, at the time the rate lock expires:

1. Rates went down. Lender has no obligation to tell you that the rates have gone down. They can say to you: "Your rate expired. But don't worry, we will still offer you the same rate." You say: "Great! Thank you very much."

2. Rates remained the same. Lender says to you: "Don't worry, rates have remained the same. You will have the same rate." You say: "Great! Thank you."

3. Rates went up. Lender says to you, "Your rate expired. We will extend the rate lock, but it will cost you an additional point." And you say: "How much is that?" And they say, a point is one percent of the entire loan amount." That means, on a $200,000 home purchase, with 20% down, you're borrowing $160,000. One point is a $1,600 charge. That's the additional fee. This is very common.

The lender loses nothing for letting your rate expire. Only if the rates go down, and a sophisticated borrower requests a lower rate, can the lender end up worse off. Where does this leave consumers in an environment where historically low rates are expected to consistently rise over the next few years? Does this fall in line with the reason that many people in the loan industry are joining the ranks of the richest 1% in the country?

January 31 2014 at 4:01 PM Report abuse rate up rate down Reply

Tried to refinance 6 mos ago. Was told debt to income was too high. 800+ score, refi would have saved me 300 monthly. Have 100k equity! What bull. I hate US Bank!

August 14 2012 at 2:31 AM Report abuse rate up rate down Reply
The Dude

The mortgage business is a scam now. For those who have been missing payments, the banks refinance for them at lower rates. For those responsible people who have been making payments diligently, the banks refuse to refinance stating the property LTV is negative. So people are rewarded for bad behavior. No wonder this country is in an all time low.

August 03 2012 at 11:24 PM Report abuse rate up rate down Reply

It only works for some people. I am in the mortgage business. I wish they would help people that are underwater and not Fannie or Freddie, or make the banks help people that need the lower payment. I hear stories that their own bank wants them not to pay the mortgage for 3 months, wreck their credit and then they will consider helping them, then they say they dont qualify. Its a stall tactic the banks are doing to not lower the rates to help people. They have been doing this for years now, and its not working. Im dissappointed that this is allowed and a small answer to help the economy and keep homeownership alive.

July 26 2012 at 8:33 AM Report abuse rate up rate down Reply

Myths is right. But three facts are that 1, refinancing a home that's already underwater is much worse than just walking away and buying a foreclosed home at a much lower price, 2) borrowing more than the home is actually worth to refinance is simply idiotic, 3) honest na dtrustworthy mortgage brokers, lenders or banks are extremely hard to find.

July 23 2012 at 9:12 AM Report abuse +1 rate up rate down Reply

A tip is polite word for the bribe but when this is overused it is a theft. Is Wall Street corrupt? Responses vary depending on whom you ask. But ask the folks who work in the financial services industry and you'll get a surprisingly clear answer: "Yes." A recent survey of 500 financial services professionals, conducted by market researcher Populus at the behest of law firm Labaton Sucharow, turned up some surprisingly candid results from the folks surveyed. For example: 39% of financial industry insiders surveyed "reported that their competitors are likely to have engaged in illegal or unethical activity in order to be successful." And this was more than just suspicion. "26% of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace." Nearly one in four "believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful. Nearly one in three said they themselves felt "pressured by bonus or compensation plans to violate the law or engage in unethical conduct. But pressure need not be succumbed to. Surely these financial industry professionals put their ethics, and the interests of their clients, ahead of personal gain, right? Well ... not necessarily. 16% of respondents admitted that they -- personally -- would break the law bytrading on insider information "if they could get away with it." Fewer than half could say unequivocally that they would not engage in insider trading in a situation where they knew for sure that they would get away with it. What's more, chances are they can get away with it. Because "only one in four financial services professionals believe [financial watchdogs such as the SEC or other government regulators] are effective." Language is fossil poetry. -Ralph Waldo Emerson, writer and philosopher (1803-1882) I thank you Firozali A.Mulla DBA

July 23 2012 at 2:36 AM Report abuse rate up rate down Reply

Honestly, I would not call this a balance sheet at all I would simply call it loos account as I do not see ant profits. Asian stocks received a thrashing Monday as fears that Greece may not receive further aid and rising worries over Spain prompted a deep, region-wide sell-off, with Hong Kong equities suffering the most. The dollar jumped against most other major currencies, while crude oil and other commodities declined, as investors sold down risk assets amid concern the weak global environment will affect growth and financial flows. The Troika refers to the Euro group, the European Central Bank and the International Monetary Fund, which collectively oversee Greek aid. A German report over the weekend said that the International Monetary Fund may cut off aid to Greece. I some back again. Monday, 23 July 2012. We still are in the dark. The ranks of America's poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and fraying government safety net. Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections. The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965. Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth. Language is fossil poetry. -Ralph Waldo Emerson, writer and philosopher (1803-1882) I thank you Firozali A.Mulla DBA

July 23 2012 at 2:35 AM Report abuse rate up rate down Reply

I had stated that we will have to wait to 2015. Greece is in a "Great Depression" similar to the American one in the 1930s, the country's Prime Minister Antonis Samaras told former U.S. President Bill Clinton on Sunday. Samaras was speaking two days before a team of Greece's international lenders arrive in Athens to push for further cuts needed for the debt-laden country to qualify for further rescue payments and avoid a chaotic default. Athens wants to soften the terms of a 130-billion euro bailout agreed last March with the European Union and the International Monetary Fund, to soften their impact on an economy going through its worst post-war recession. By the end of this year Greek GDP is expected to have shrunk by about a fifth in five consecutive years of recession since 2008, hammered by tax hikes, spending cuts and wage reductions required by two EU/IMF bailouts. Unemployment climbed to a record 22.6 percent in the first quarter. "You had the Great Depression in the United States," Samaras told Clinton, who was visiting Greece as part of a delegation of Greek- American businessmen. "This is exactly what we're going through in Greece - it's our version of the Great Depression." Athens must reduce its budget deficit below 3 percent of GDP by the end of 2014, from 9.3 percent of GDP in 2011 - requiring almost another 12 billion euros in cuts and higher taxes on top of the 17 billion successive governments have cut from the budget shortfall. Greece wants its lenders to give it two more years to achieve the budget goal to avoid an even deeper economic slump but its lenders reported on Sunday, citing high-ranking representatives in Brussels, that the IMF may not take part in any additional financing for Greece. The German and Greek finance ministries declined to comment on the report, which suggested additional support required for Athens could range from 10-50 billion euros. I thank you Firozali A.Mulla DBA

July 23 2012 at 2:35 AM Report abuse rate up rate down Reply

I built a two story addition on my house, making it three times the original size. Now I can not refinance because there is nothing in this area to compare it to. This is per Bank and appraiser, value remains as it was. Original = $120,000 New = $240,000+ existing mortgage = $80,000 @ 6.625% Don't even want cash back, just a lower payment.

July 23 2012 at 12:07 AM Report abuse rate up rate down Reply
1 reply to Bill's comment

whoa whoa WHOA WAIT A MINUTE---
if you REALLY WANNA get down.....get it reevaluated according to those wonderful folks over at the real estate TAXation dept in your zipcode and LET THEM do the math and take that to the bank-
sooner or later THEY WILL COME to do this --they want their money.
see what they come up with and if THAT is not good enough for the malacas at the bANk---start screaming to the political whore_dom as IT IS AN ELECTION YEAR.....and miracles HAPPEN when it's an election year.
in a way the reeval HAS TO GET DONE as being everyone's BROKE,they'll sock it to ya years later with a lump sum demand within your baseline real estate taX BILL.

make sure that a refi is the way to go as sometimes things DON'T ALWAYS seem to be what you think they are at first.

July 23 2012 at 5:03 PM Report abuse rate up rate down Reply

Look at the overall cost of refinancing........oh but they'll roll that into the new mortgage (except the home appraisal - you pay that one). Unless you're looking at dropping your new rate by at least 4 points, it isn't even worth it. You also have to consider, the new appraisal will likely be lower than you expected........
I've looked into it thinking I "needed" to because of damn articles like this one. Educate yourself before you buy your house all over again.

July 22 2012 at 9:44 PM Report abuse rate up rate down Reply
1 reply to PT1969's comment

My bank told me the cost to refi was going to be around 7K,,,,,,,,,,,,
I'm at 5.75 fixed just isn't worth it to save basically 2 points.

July 22 2012 at 9:55 PM Report abuse rate up rate down Reply
1 reply to PT1969's comment
Nick in MKE

Wow, 7k is more than I had here in Wisconsin... My refi costs were around 2.5k (2% of loan value, my mortgage is on a modest $125k) which makes it much easier argument for payoff... I also had (barely) 20% equity still, so I was able to stay away from mortgage insurance.
I was 8 years into a 30 year fixed at 5.5, went to a 15 year fixed at 3.5 and kept the payment basically the same.
My 15 year rate was so 'high' because I did a no closing-cost option, where they basically gave me a negative point to pay for the closing costs. I could've paid 2k at closing and gotten a 3.25 rate, figured the difference was a wash at 6 years (payback difference between paying up front or every month in the higher rate). Either way, since I did a no closing-cost option, payback was basically instant, my balance did not go up, and my monthly payment pays down my mortgage faster.
Best of luck PT1969

July 25 2012 at 12:34 PM Report abuse rate up rate down