With the markets trashing your investments right and left, the smartest financial move you could make is to refinance your mortgage. Right now, mortgage rates are at their lowest level in two-and-a-half years, and if you refinance a 30-year, $100,000 mortgage you took out 6 years ago at 8 percent, you’ll save an average of $27,059. But if you refinance for 20 years instead of 30, you’ll save nearly triple that amount.
This beats the stock market.

Financial analysts and other experts will tell you to refinance your mortgage right after Alan Greenspan cuts interest rates, but that is wrong. The last time the experts urged refinancing was in April, when the 30-year fixed rate was 7.14 percent and the rates were rising. Now, the 30-year fixed rate is at 6.8 percent. Had you refinanced the same $100,000 loan four months ago instead of today, it would have cost you $8,215 more.
The mistake is to refinance only when rates have touched rock bottom, but no one can be certain about it. The odds are that you’re running out of time because today’s weak economy will probably rebound in 2002, when the refinancing rate will have returned to 8 percent.

Refinancing is big bucks, which will account for just under half the estimated $l.4 trillion mortgage market this year, up from $1 trillion last year, according to Frank Nothaft, deputy chief economist for Freddie Mac, the big corporation that funds home loans for lenders.

What borrowers want are “no down payment, and no-closing-costs loans,” said Philip Spencer, president of National Mortgage Association, an Oklahoma City-based lender. “But that’s going to cost them from five-eighths to three-quarters of a percentage point higher than the advertised rate.”

Spencer offers the following tips before you start mortgage refinancing:

• Plan ahead of time to save enough money for your down payment. Try putting down at least 20 percent so you won’t have to pay private mortgage insurance (PMI), which typically runs between $40 and $100 per month.

• Make sure your bills are paid on time. Obtain a copy of your credit report, and check it for errors before you apply for a mortgage, not afterward.

• Get prequalified for your loan in advance. Shop at least five or six lenders for the best combination of rates and points. Do business with an outfit you trust; get references from friends.

Other mortgage experts offer the following suggestions:

• Obtain a written statement. Get a “good faith estimate” of your total costs in writing.

• Don’t drag your heels. Move steadily along once the application process starts, but don’t be steamrolled by pushy mortgage lenders and brokers.

• Estimate the number of years you’ll remain in the home. Get an adjustable rate mortgage only if your stay will be fewer than five years. Alternatively, go for a fixed rate. If you can afford a slightly higher monthly payment, get a 15-year or a 20-year loan. It will save you thousands of dollars.

• Recovering the cost of refinancing. Closing costs are usually 3 percent to 5 percent of the total loan amount, for example, $3,000 to $5,000 on a $100,000 loan. Figure out how many months it will take you to recover the costs of refinancing by dividing the cost by the amount you’ll save on each payment.