Rethinking How to Refinance Home Loan

Do you think you can beat the market -- the mortgage market, that is?

Americans have become experts at pulling money out of their homes, to the tune of $600 billion in 2004. Much of that refinancing was done at adjustable interest rates -- and now the rates are adjusting upward. So maybe it's time to reverse the process and start putting money into your home equity. Or at least to refinance those home equity lines of credit to a fixed-rate loan.

In the second half of last year, 63% of new mortgages were subject to interest rate adjustments. And 23% of new loans were "interest only" loans. Those loans are potentially the most dangerous, though they make home ownership more affordable.

If you have a $200,000 interest-only mortgage at 5.25%, you'll pay $875 per month on your loan. But if rates rise just 1.25 percentage points, to 6.5%, the monthly payment on that interest-only loan jumps to $1,083. That can put a serious dent in your budget, even without taking into account rising utility costs.

If you're thinking about refinancing, there are a few key things to consider.

Where to refinance: Obviously, you'll be checking interest rates at local institutions and at Web sites such as QuickenLoans.com, as well as the Web sites of every major banking firm. Be aware that some sites, such as LendingTree.com, exist primarily to generate leads for mortgage brokers. But there are good reasons to do business with a local institution or mortgage broker.

Mortgage broker vs. bank: The critical ingredient in refinancing your mortgage is finding someone you trust. A good place to start is your credit union or bank, or the financial institution that currently holds your mortgage. But with personal banking relationships scarce these days, you might also ask friends for a reference to a mortgage broker. Just as you would choose a stockbroker or financial adviser very carefully, you'll want to take the search for a mortgage broker seriously.