NEW YORK (CNN/Money) -
So you want to refinance your mortgage. Get in line.
Record-low interest rates – the 30-year fixed mortgage rate now stands at 6.15 percent – have homeowners scrambling to slash their payments. In 2001, a boom year, Freddie Mac saw refinance originations totaling $1.1 trillion. This year, the number could be higher, said Frank Nothaft, Freddie Mac's chief economist.
"I've never seen the market like this," said Michael Daversa, a mortgage broker with Atlantic National Mortgage, in Westport, Conn. "It doesn't even compare to last year. I thought October and November 2001 were the busiest months of my life. The last 6 weeks absolutely blow them away. Every single customer I've ever had has called to at least ask whether a refi is a good idea."
In an ordinary market, processing a refi usually takes about a month, so homeowners typically opt for a 30-day lock on mortgage rates, which freezes the rate while the paperwork is completed. But these days, closing on a refi in 30 days or less is next to impossible.
What to do?
As such, Keith Gumbinger, vice-president of HSH Associates, an online publisher of mortgage and consumer loan information, said he suggests consumers at least inquire about a 45- or 60-day lock, which cost slightly more.
The standard 30-day lock may cost consumers nothing, if they close within the month. Lenders usually require a deposit - 1 percent of the total loan amount is standard fare - which gets returned to you or applied to closing costs if you close within the 30-day window. Close late, however, and you can kiss that deposit goodbye. On a $200,000 mortgage, that's $2,000 gone.
But lock in rates for a longer period and you'll either pay a higher interest rate or an up-front percentage-based fee – or both.
A 60-day lock, for example, might cost you an 1/8 of a point more in interest, Gumbinger said. On a $200,000 mortgage at 6.25 percent, you'd pay a total of $243,316 in interest. Lock in a 6.375 percent rate, just 1/8 percent higher - and you'd pay $249,186 in total interest, nearly $6,000 more over the life of the loan.
Or, you might have to cough up 1/2 percentage point in up-front fees. On the same mortgage loan, you'd pay a $1,000 fee.
Exactly what you pay for the added security of a locked rate varies among lenders. But Gumbinger said fees and mortgage rates generally climb as the length of your lock increases.
Missing the deadline
You won't likely miss your closing date if you choose an ample lock-in period, but you know what they say about the best laid plans.
"Technology streamlines the process, but there are still delays," Gumbinger said. "Inspectors and appraisers can only do so much in a day. Paperwork has to get through the mail."
Before you choose a lock, look for caveats, said Doug Duncan, chief economist of the Mortgage Bankers Association of America. Don't hesitate to ask exactly what would happen and what you would be responsible for if your lock date passes and you haven't closed.
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Lenders play by their own sets of rules. Some have a one-time option that allows your rate to drop one time if the market permits after you've locked. Others allow for lock extensions, ranging from 2 to 15 days, in a crunch. And some lenders will honor your original rates if they are responsible for closing delays.
On the other hand, if you're responsible for the delay you may have to absorb the loss and pay more.
"Having all your ducks in a row improves the odds of closing on time," Gumbinger said.
Another way to hedge your bets is to refinancing through your original lender. It's certainly worth your first phone call, Gumbinger said. They have all your information at their fingertips, so they should be able to expedite the process and they may not have to re-crunch all the numbers -- costing you less.
"[Your original lender] may or may not offer a rock-bottom interest rate, but if you can improve your rate by a reasonable amount and all you have to do is sign a few documents, that can be very worthwhile," he added.
The old days
If you're frustrated by the process already, remember refi loans are getting less painful every year. Technology has streamlined the mortgage application process and has lenders in a good position to manage high loan volume.
During the first modern-day refi boom in 1987, Gumbinger said, delays were "outrageous."
"People lost their locks, extensions on locks and so on," Nothaft said. "I know of people who waited 9 months for a refi to close."
Contrast that with last year's refi rush.
"The housing finance system handled about 2.5 times the number of loans last year that it did during the first boom, and we had no reports of significant bottlenecks," Nothaft said.