Well folks, I believe the 2nd re-fi boom of 2001 is now upon us. For homeowners who thought President Bush's tax refund checks were a nice surprise, you may be a candidate to save a lot more than a few hundred dollars. Interest rates have dropped to levels not seen in quite a while so it may pay to pull out your mortgage note and do a bit of comparing.

But before you jump on the refinance bandwagon, here are a few "dos and don'ts" that should help in your search for the best re-fi option.

• Refresh yourself with the exact terms of your current mortgage. Know your rate, mortgage balance, principal and interest payment and term. A loan officer will have trouble giving you the best advice if he doesn't know your current situation. As I often say to clients -- "I don't know if point B is a better place than point A if I don't know where point A is".

• Understand that when you refinance, you start a new term from the beginning. If you are several years into a 30-year loan, recognize that refinancing to a new 30 year term starts you from scratch. This is not necessarily a bad thing, because it results in a lower monthly payment and mortgage interest is tax deductible in most cases. But for folks who are itching to pay off their loan, it important to understand.

• Don't get sucked into a "low" rate with high fees. Avoid paying points. One point is equal to one percent of the loan amount in cash. The lower your interest rate, the higher the points. I rarely advise paying points to "buy down" the interest rate because it usually takes about nine years to recoup the points in the form of a lower payment. A good loan officer will be able to run the numbers and calculate a payback period.

• Listen to friends, family and neighbors when choosing a lender. Referrals from these folks are often the most reliable source.

• Consider a "zero closing cost" option if available in your area. Such loans, of course, have costs -- they're just not paid at closing. Mortgage brokers in areas around the country offer refinance rates with no points or closing costs. This will enable you to refinance your home without any out-of-pocket expenses or loss of home equity. Expect the rate to be slightly higher, but it's a no-brainer if the zero cost rate is lower than your current rate.

• Think about what your objectives are before shopping around for a mortgage. Ask yourself these questions. Do I want to lower my monthly payment? Do I have a reason to obtain a larger loan and take equity out of my house? Do I want to consider a shorter term loan, such as a 15 or 20 year loan? How long am I expected to hold onto this property? If I plan to sell within a few years, what adjustable rate programs are available? Again, a good loan officer should be able to help define your objectives.

• Don't take a loan with a pre-payment penalty. These programs will slap you with financial penalties if your pay off or pay down the loan too early. It's best to have the freedom to pay off the loan whenever you want.

These are just a few things to think about. With any luck, today's low interest rates will put some extra money into the pockets of millions of Americans and our economy will kick back into gear.

For more articles by Henry Savage, please press here.

Published: October 10, 2001

Use of this article without permission is a violation of federal copyright laws.