New York (CNN/Money) – Homeowners have been lining up in droves over the last two years to lower their mortgage rates and slash their monthly bills. But all those who could benefit from a home loan refinancing have surely done so already, right?
Think again.
The value of home refinancings hit a record $480 billion in the first half of the year, trumping last year's record by a cool $12 billion, the Mortgage Bankers Association of America reports.
It turns out, many individuals who refinanced last year are coming back for seconds and sometimes thirds, looking to eke out even bigger savings.
Michael Duffy is among them. The Chevy Chase, Md., homeowner a few months ago modified his jumbo mortgage -- a 6.5 percent adjustable-rate loan -- for an ARM of 6.25 percent. The switch put an extra $100 in Duffy's pocket each month and cost a relatively modest $400 in fees.
"I've been ARM surfing for a good 10 years now," he boasts.
In fact, Duffy's back on the prowl for a 30-year fixed mortgage with a comparable rate to the ARM he's got now. The move will give him the peace of mind that, no matter what, he's locked into a low rate, especially since he doesn't plan on moving or selling anytime soon.
For folks like Duffy -- call them refinancing junkies -- the Golden Rule of waiting to refinance until rates drop by at least two percentage points does not apply. That's especially true for owners paying off jumbo loans, where a minimal dip in rates can slash hundreds of dollars from a monthly mortgage bill.
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"For those folks, it's about cash flow," says Keith Gumbinger, vice president of HSH Associates, which tracks mortgage data.
Of course, refi addicts are getting plenty of encouragement from lenders, who have made it cheaper than ever to shop around for a new loan. In fact, no-cost refinancing, which incorporates fees into the cost of the mortgage over time instead of making individuals pay up front, is not uncommon. And that makes it easier for homeowners to renegotiate their contracts.
"We've heard of cases where people have refinanced three times in a year," said David Olson, managing director at Wholesale Access, a mortgage research firm. "This used to be a stable industry for years. But it's a whole different behavior right now."
That's not to say refinancing is free. One of the dirty little secrets of refinancing is that over time, it can add thousands of dollars more in interest to the life of a loan. That's especially true for homeowners who are well into paying off principal, since a refinancing basically starts the clock back over on a 30-year mortgage.
As such, someone who refinances seven years into a 30-year, $200,000 loan will pay $31,000 more in interest over the life of the loan if they refinance and cut their rate from 7.5 percent to 6.5 percent.
Because competition is so fierce among lenders, always ask if you can refinance using the existing term of your loan.
For more of the pitfalls of refinancing, click here.
But refinancing can also be a windfall for new homeowners like Brian and Melinda Ruby, who bought their three-bedroom Colonial in Stratford, Conn., this time last year, but already have refinanced. At the time the couple closed on their starter home, they were delighted to lock in a 7 percent rate.
"We thought we got the rate as low as it would go," said Brian.
But four days after they bought the house, terrorists flew into the World Trade Center and Pentagon. The market tanked and rates dropped. The Rubys' lender prohibited refinancing for the first three months of a loan. By the time the couple could make a move, rates had climbed a bit and they were in the middle of renovating their house.
Now rates are hovering around the same levels as last September and the couple just refinanced their mortgage at 6.37 percent. In the months since they've owned the house, they've also lowered their loan amount by a couple thousand dollars, making them eligible to stop paying private mortgage insurance (PMI). These moves will save them $146 a month -- and will whack off a fat $20,000 from interest costs over the life of the loan.
"We're hoping to start a family soon, so that helps," says Brian, who only half-jokes when he adds that their "401(k) isn't doing very well, but the mortgage payment is lower."
Joseph L. Romano, Jr., however, president of A.J. Romano Mortgage Company in Stratford, who helped the Ruby's refinance, says lower monthly payments are just one of the motivating factors that have spawned the refi revolution. Many of his clients of pre-retirement age are looking to swap their 30-year loan with the 15-year variety.
"They just save so much money by cutting the term down," says Romano. "First of all, psychologically, it's really good. And secondly, these are historic lows. These usually don't last that long, so if you have a chance, do it."
Others are looking to slash existing debt.
"A lot of people will refinance even when there's no change in rates," said Olson from Wholesale Access. "They want to refinance their 18 percent credit card into their mortgage. They're putting all their debt in one mortgage."
For some, that makes sense. Arter all, even if refinancing to pay off outstanding bills means paying more interest over the life of a loan, mortgage debt is better than plastic since the interest is tax deductible. You also pay a much lower rate than you would on credit cards.
Nevertheless, planners like Dee Lee, a CFP and author of "Let's Talk Money", is wary when clients ask her about refinancing to pay off their bills.
"A home should be a shelter, not a tax shelter," she says. "But if they promise to cut up their credit cards, great. They have a new beginning."
-- This story was updated Oct. 2, from its original publish date of July 16.
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