Smart Money: Greedy homeowners may miss refinancing boat

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Bruce Williams is a national radio talk show host and syndicated columnist.|ret||ret||tab|

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Dear Bruce: I'm thinking about refinancing my home but I keep seeing the rates falling. I know if I buy it, the rates will fall another 1 percent. How can I tell when the rates have really reached the bottom? B.W., Eureka, Calif.|ret||ret||tab|

Dear B.W.: You've heard the expression that "bulls make money, bears make money and pigs go to slaughter." You're sounding like an oink, oink. Trying to hit the bottom of any purchasing period or the top of any selling period is a very risky enterprise and generally results in disaster. The interest rates that are available today are historically low. Why in the world would you want to squeeze out an extra quarter percent and perhaps miss the rates as low as they are now? |ret||ret||tab|

As long as you're going to keep your home for a period of three or more years and there is a spread of 1 percent, I would very seriously consider refinancing, taking into account the cost of the refinancing and how long it will take you to recapture it. Generally, if you can recapture all of the costs in interest savings in three years or less, it's a go.|ret||ret||tab|

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Dear Bruce: I have not received all of last month's rent, and it is now the middle of the following month. The lease runs out at the end of this month. How can I file for eviction? Reader via e-mail|ret||ret||tab|

Dear Reader: By the time that you start any legal proceedings, the end of the lease will arrive. Whether the tenant will move is entirely up to them at this point. That will determine whether an eviction proceeding is necessary. |ret||ret||tab|

Collecting the money is a separate issue. If they have no assets, the reality is that this is a hazard of being a landlord. If you know now that they are going to leave, even though they are not going to pay the rent, an eviction would just be an extra expense that you need not incur.|ret||ret||tab|

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Dear Bruce: We've had our current mortgage, with a principle of $175,000, for 3 1/2 years. In the first five years there is a prepayment penalty. We are currently paying 7.4 percent. It would seem that the penalty, $7,000, would negate any savings on refinancing. Reader, via e-mail|ret||ret||tab|

Dear Reader: You would be better off to continue the current arrangement. If you were to refinance and save 2 percent, you would save approximately $3,500 a year, which would work out to about $5,300 over the year and half. It's going to cost you $7,000 in prepayment penalties. The only argument one could make is that interest rates are very low now, but could skyrocket in 18 months. That argument has merit. |ret||ret||tab|

It comes down to whether you're willing to pay a $1,700 premium to lock in today's lower rates. Do you think that the rates will be somewhere in this neighborhood 18 months from now? If so, don't refinance. If you think the rates are going to go up materially, then you might consider the "insurance premium" of approximately $1,750 to guarantee that you will have the lower rate.|ret||ret||tab|

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Dear Bruce: Why must title insurance be researched every time a mortgage is refinanced? It seems that title insurance companies justify their fees by reinventing the wheel each time a mortgage is issued. Reader in Missouri|ret||ret||tab|

Dear Reader: I agree with part of your observation: It's not necessary to go back and do a complete title search, it should only be done from the time that the last title search was completed, sometimes as little as a year or two ago (assuming the same title company is used). Title insurance is a very profitable venture for everyone concerned, albeit a necessary part of real estate transactions. |ret||ret||tab|

Generally, title companies do not pay the dollar limits of their policy, but rather they have the expertise to clear up a problem with a title. I can see no reason for an additional substantial fee on a refinance given that they are already on the hook for a title policy. The only period of time that is in question is that period between the last title search and the refinance. |ret||ret||tab|

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Dear Bruce: I am single, 27 years old and want to buy a home. My annual income is around $50,000. I'm getting conflicting advice on how to finance a home. While some attractive programs offer little or no money down, there are some consequences. |ret||ret||tab|

I have around $12,000 to put down, but I am hesitant because I do not want to deplete most of my savings. What financing options would you recommend for someone in my situation? M.G., Columbus, Ohio|ret||ret||tab|

Dear M.G.: Having about $12,000 to put down is the definition of little or no money. At 20 percent, that would only allow you to buy a house valued somewhere in the vicinity of $60,000. I have no problem with your income supporting a mortgage of about $140,000. However, that would require a down payment in the neighborhood of $30,000 or more. Since you didn't say whether you'll be obliged to pay for private mortgage insurance, go for an FHA mortgage or possibly a first-time buyer mortgage if one is available in your area. |ret||ret||tab|

With very cheap money available, it could be argued that the biggest mortgage that you can get is a good investment for the future. |ret||ret||tab|

But the other side of the argument is what will the down-payment money be doing for you right now? Unless you are prepared to take some risks, the answer is very little.|ret||ret||tab|

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Dear Bruce: My mortgage has been sold five times in the last four years. I feel like I'm playing bank of the month when it comes to making my monthly mortgage payment. I know that this is a fact of life in the world of mortgages, but do I need to do anything to protect myself? D.B., via e-mail|ret||ret||tab|

Dear D.B.: You're right: It is a fact of life. However, the same institution will continue to service the loan, which does make life a little easier. |ret||ret||tab|

Still, keep and maintain accurate records from day one. Make sure that you hang on to all of your canceled checks statements showing monies deducted from escrow accounts. |ret||ret||tab|

This way, a paper trail can be constructed if a problem arises. This may be a nuisance, but I don't know of any way to avoid it.|ret||ret||tab|

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Dear Bruce: I was approved for a home loan by the local credit union. They offered me a deal concerning my homeowner's insurance. |ret||ret||tab|

They say that I will not have to pay for homeowner's insurance, but if the interest rate goes up any time after seven years, they will charge me that interest rate. I was wondering if I should just pay the insurance? My plan is to pay $200 a month on top of the house payments, which will cut the loan by several years. R.M., Madeira, Calif.|ret||ret||tab|

Dear R.M.: I've heard a lot of deals, but not one like this. You did not specify exactly what they are offering you in terms of insurance whether it's a basic plan or one that allows you extra coverage. If I were you I would buy my homeowner's insurance and get a fixed rate mortgage without it being contingent on any possible rate increase. |ret||ret||tab|

Further, while I know it sounds attractive right now to pay off your mortgage early, in the long run it would be wise to keep your hands on as much of this cheap money as is possible. Several years from now you may look back on the idea of giving back 5 percent money early, and determine that you have made a very serious mistake.|ret||ret||tab|

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