Mortgage rates on 15- and 30-year fixed mortgages are at all-time lows. So, is now a good time to refinance your existing mortgage? That depends on several factors.

The first, of course, will be your loan-to-value ratio. In no-cash-out refinancing (where the amount of your new loan doesn’t exceed the balance of your existing loan, plus points and closing costs, if applicable), you may be able to borrow as much as 95% of your home’s value. However, if the value of your home has fallen below the amount of your existing mortgage balance, you may be unable to refinance at all, except through the American Recovery and Reinvestment Act of 2009′s Home Affordable Refinance program (see sidebar). But let’s assume your loan-to-value ratio is still “above water”–that is, the value of your home is still greater than your mortgage balance.

If you refinance your mortgage to a lower interest rate, you may save a substantial amount on your monthly mortgage payment–which will give you more money to put toward your savings goals or reducing your other expenses. This is one of the main reasons people consider refinancing their mortgages. But what other factors do you need to consider?

How much will it cost?

The cost of refinancing can include both points you pay and other expenses (called “closing costs”) related to refinancing.

One point equals 1% of the amount to be financed. So, if the refinancing costs will include an up-front charge of 0.5 points and you’re refinancing $200,000, you will incur a charge of $1,000 (special tax treatment applies to points).

Closing costs typically include an application fee, attorney’s fee, appraisal fee, credit report fee, loan origination fee (which can be 1% or more of the amount you refinance), title search fee, and title insurance. These costs can vary from state to state. Get a “good faith estimate” from each potential lender and compare both closing costs and interest rates.

Be careful about lenders that advertise “no points, no closing costs” refinancing deals. Often these plans simply roll the closing costs into the amount to be refinanced, or come at a higher interest rate.

How long will it take to recoup the costs?

To determine your break-even point (the point at which you’ll begin to save money after paying fees and closing costs), divide the amount of your monthly mortgage payment savings due to refinancing into the cost of refinancing; the result is your break-even point, expressed in months.

Example: If you’re saving $100 per month on your refinanced monthly mortgage payment, and your refinancing costs totaled $3,700, your break-even point is in 37 months.

It makes sense to refinance if you’re certain that you’ll be able to recoup your refinancing costs while you’re still living in your home. Ideally, you should recover your costs in one year or less.

A matter of term

In many cases, refinancing may mean taking out a mortgage with a new term equal to the original term of your refinanced mortgage, not equal to the remainder of the term on that mortgage. Depending on when you refinance, this can make a significant difference in the amount of interest you’ll pay overall.

Example: You have a $200,000 30-year fixed mortgage at 6%, with a monthly payment of $1,199. After 6 years, you have paid $69,131 in interest on that mortgage. At that point, you refinance your remaining principal balance of $182,796 for a new 30-year fixed mortgage at 5% with a monthly payment of $981. Over the life of that new mortgage, you will pay $170,468 in interest. So, your total interest payment will be $239,599 ($69,131 + $170,468). If you had stayed with your old mortgage at 6%, you would have paid a total of $231,676 in interest. Instead, by refinancing when you did, you’ll pay an extra $7,923 ($239,599 – $231,676) in total mortgage interest.

Because of this, you may want to consider applying the monthly mortgage payment savings after refinancing toward additional principal payments. By doing so, you can reduce both the term of your mortgage and the total interest you’ll pay.

Crunch the numbers first

In many cases, refinancing looks attractive in the short term because your monthly mortgage payment will be lower–and that can be important to your monthly budget. But will it really save you money to refinance, both in the short run and in the long run? That depends on many factors. Look at them all before you make your decision.

Experts say it costs more to rebuild than it does to start from scratch, so the market value of a house doesn’t indicate the amount of insurance you need.

There are a number of steps every homeowner should take to lower the cost of property insurance. But reducing the amount of coverage to match today’s lower values is probably not one of them.

Because it costs more to rebuild than it does to start from scratch, the market value of a house is not a reliable indicator of the amount of insurance you need. Too little coverage and your policy may not assume the cost to return your place to its original condition if needed.

“There has been a lot of noise lately around market values, but market value and the cost to rebuild are two totally different things,” said Elaine Baisden, vice president of national property for Travelers Cos., the Hartford, Conn.-based property casualty insurer. “So lowering policy limits could leave you underinsured.”

Despite the downward spiral in housing prices, home repair costs increased nearly 4% nationally, according to Xactware, whose software products estimate building and repair costs. Marshall & Swift, an authority on building-cost data, says it can cost as much as 30% more to rebuild a house as opposed to building a new one.

Reconstruction costs are greater because the process usually involves the demolition and removal of damaged property. On-site mobility often is limited by the need to work around existing landscaping, power lines and other buildings. There are no economies of scale like there are when building row upon row of houses. Then there’s the issue of newer, often more rigid building codes that might have to be met.

Market value, on the other hand, is often influenced by factors that have absolutely nothing to do with the cost to rebuild — the quality of nearby schools, for example, the local tax base or the proximity to rapid transit.

Value also is affected by the cost of the land on which the house sits, and that is something you should factor in when considering how much coverage to carry.

Typically, the building lot accounts for 25% of a home’s value. But you can get a better reading from your tax bill, which usually separates the value of the land from the value of the house. You shouldn’t use the property’s assessed value to determine how much coverage you need, but you can use the percentage ratio of the lot to the total to at least get an idea of what’s needed.

Still, it’s probably not a good idea to arbitrarily make these kinds of decisions without first sitting down with your agent and discussing your needs. The wrong choice could prove to be an expensive one, Travelers’ Baisden said.

“Home insurance limits are in place to financially protect your family should something go wrong,” she said. “If there’s a fire or a significant weather event, you want to make sure you have enough coverage to rebuild your home in its entirety.”

How to save

Here are some other steps you can take to save money while still protecting what may be your most valuable asset.

* Check your credit records. For years, insurers based their rates mainly on the location and age of the property and its distance from the nearest firehouse. Now, like mortgage lenders and other credit issuers, they “score” policyholders based on information in their credit histories.

It’s a controversial practice, but insurers maintain that insurance scores are highly predictive of risk. Some use scoring only when other factors suggest that you are likely to file more claims, but others use it more extensively as both an underwriting tool and a mechanism for setting rates.

Whether you agree with the practice or not, it is important to pay your bills on time and make sure that there are no errors in your credit records.

* Avoid nuisance claims. The more claims you file, the more you are going to be charged, even if the claims are legitimate. So use your coverage for its intended purpose — to protect against losses from which you cannot recover on your own — and take care of the minor incidents yourself.

* Shop around. Prices vary from company to company. You won’t be able to negotiate rates, but you may be able to lower your costs by comparison shopping. Premiums can vary substantially from one insurer to the next.

Although price is important, there are other factors to consider when choosing an insurer. You want a company that’s financially stable, and an agent who takes the time to answer all your questions. And make sure that the company isn’t prone to cutting loose anyone and everyone who files a claim.

You can check the financial health of the various carriers with rating companies such as A.M. Best and Standard & Poor’s. To get an idea about service, talk with friends and relatives about their experiences, or consult consumer guides (such as Consumer Reports) that rate insurers every few years on readers’ overall satisfaction with their companies.

* Raise your deductible. A deductible is the amount you pay toward a loss before your coverage kicks in. The higher the deductible, the lower the premium.

According to the Insurance Information Institute, an industry-supported nonprofit communications organization, bumping the deductible from $250 to $500 could cut your costs 12%. You could save as much as 25% by jumping to a $1,000 deductible, and up to 30% by going to $2,500.

But since you will be self-insuring, be careful. Don’t go so high that you don’t have the cash reserves to cover your share of the loss.

* Look for discounts. It may be possible to lower your costs by buying all your insurance from the same company. Some insurers will cut their premiums up to 15% if you buy two or more policies from them. But be sure that the combined price is lower than buying the same coverage from competing companies.

Other discounts abound. You may get a break of up to 10% if you’re a longtime policyholder, say, for six years or more. And if you are over 55 and retired, you may qualify for a senior discount under the theory that since you’re now home more, there’s less chance of a major loss because you will be there to catch the fire or leak before it gets out of hand.

You usually can obtain a premium reduction ranging from 5% to 25% if you have protective devices such as burglar alarms or even deadbolt locks.

This important decision is often an afterthought during a sale but it has significant legal ramifications.

The manner in which homeowners hold title to their properties has significant legal ramifications. Consequently, it’s not wise to leave this important decision to chance.

Escrow agents will ask how you would prefer the title to read. But often the question isn’t posed until you near the close of the sale, and by then it may be too late to give any real thought to your options.

With that in mind, here’s an overview of some of the more common forms of ownership:

* Tenancy by the entirety. In most cases, this is the correct way for married couples to hold title. In fact, it is available only to married couples.

Tenancy by the entirety creates an estate in which each spouse has an undivided interest in the property, or the equal right of possession and enjoyment during their joint lives. It also vests each spouse with the right of survivorship so if one dies, his or her interest transfers to the survivor.

Since probate is unnecessary on the death of the first spouse, the property won’t be tied up in court. Instead, it can be sold right away if that’s necessary. Also, the survivor takes title to the share of the property attributable to the deceased at its “stepped-up basis,” or its fair-market value as of the date of the spouse’s death.

Equally important, the individual creditors of either spouse cannot attach a lien on a property held as tenancy by the entirety. If a judgment is against both of you, the creditor can put a lien on the house, but not if the judgment is against one of you.

* Tenancy in common. Under this alternative, each person owns a set but not necessarily equal percentage. And there is no right of survivorship. Thus, the decedent’s share vests with whoever is named in the will. And unless the deceased holds his share in trust, it goes through probate just like the rest of his estate.

Furthermore, the share that transfers to the survivor counts against the federal estate tax credit. So if the husband is very ill and may not survive, it might be a good idea to retitle the house as tenants in common with him holding a 99% share. That way, when he dies, his share will pass at the date-of-death value to his wife. And then, if she must sell shortly thereafter, there may be less capital-gains tax to pay, if any.

This is often the preferred method of ownership for unrelated co-owners and for remarried couples who want to leave their share to children from previous marriages.

Co-owners may have unequal shares, and each can convey his portion without the consent of the other. When a tenant in common dies, his share is passed on according to his will or, if there is no will, by state law as it applies to intestate succession. But there is no protection from creditors.

* Joint tenancy with right of survivorship. This is similar to tenancy by the entirety, except that the property is not protected from the individual creditors of each owner. Another potential drawback is that regardless of what the deceased’s will says, his share will pass to the joint tenant.

Because of the right of survivorship, joint tenancy may be the best way to hold title for parent-and-child owners. Since it is more likely that the parent will die sooner, the child will receive the parent’s share at its current value.

But under this form of ownership, all joint tenants are presumed to have an equal share, a situation that may leave the co-owner parent a bit uneasy. Also, in many states, one co-owner can dissolve the joint tenancy without the other’s approval, which might not make any of the owners comfortable.

* Sole ownership. For the most part, a single, unmarried buyer will take title as the sole owner in his or her name alone. It is sometimes known as “ownership in severalty.”

Holding property in this manner gives you complete control. If you marry later, your spouse does not automatically acquire ownership in that property. And if you divorce, your ex may still have no claim to the property.

However, you won’t have the benefits that come with other forms of ownership. You won’t be able to avoid creditors or the probate process, and the property will be considered part of your estate for federal estate tax purposes.

Married persons also can take title as sole owners. But in some states, the spouse not on the title must sign a quitclaim deed, giving up any claim to ownership in that property.

* Trusts. There are many types of trusts, but the revocable living trust is probably the most common and useful for holding title to real estate. You convey title to a trustee — who can be anyone, including yourself — who manages the property on your behalf.

Sometimes known as an inter vivos trust, this is a tax-neutral device, meaning that all the tax benefits and burdens of ownership continue to accrue to the grantor even though he or she no longer owns the property directly.

Holding property in this manner is useful if one of the co-owners becomes incapacitated or incompetent. Then, his or her trustee can make whatever property decisions are necessary without petitioning the court for permission. Also, property held in trust passes without probate. But creditors cannot be avoided.

Fannie Mae and Freddie Mac are likely to remain in government conservatorship until at least next year, the Obama administration indicated today in unveiling a sweeping plan to overhaul the financial regulatory system.
The mortgage giants’ “continued stability and strength” is needed during “these difficult financial times,” the administration said in a report outlining proposed changes to the regulatory system.
The proposed changes, which will require congressional approval, would include a new financial services oversight council to identify emerging systemic risks and a new national bank supervisor to oversee all federally chartered banks.
In addition, the plan would eliminate the federal thrift charter and other loopholes that the administration says allowed some depository institutions to avoid bank holding-company regulation by the Federal Reserve.
The plan would also give the Federal Reserve new authority to supervise all firms that might pose a threat to financial stability — even non-banks — and require hedge funds and other private pools of capital to register with the Securities and Exchange Commission. Stronger capital standards would also be imposed on all financial firms.
In introducing its proposal to overhaul the financial regulatory system, the Obama administration said it won’t issue recommendations on the future of Fannie Mae and Freddie Mac until next year.
The Treasury Department and the Department of Housing and Urban Development (HUD) will seek input from the public and other government agencies and report back to Congress next year with recommendations on the future of Fannie, Freddie, and the Federal Home Loan Bank system, collectively known as the government-sponsored entities, or GSEs. The report is expected to be released when the administration issues its 2011 budget proposal next spring.
The Obama administration has identified at least six options for Fannie and Freddie:
• Return them to their previous status as privately owned, government-chartered companies that seek to make a profit for shareholders while pursuing public policy homeownership goals.
• Wind down Fannie and Freddie’s operations and liquidate their assets.
• Incorporate the GSEs’ functions into a federal agency (such as Ginnie Mae, which operates under HUD).
• Operate Fannie and Freddie on a public utility model, with the government regulating their profit margins, setting guarantee fees, and providing explicit backing for their guarantees.
• Converting the GSEs into companies that provide insurance for covered bonds.
• Break Fannie and Freddie up into many smaller companies.
Even after their huge losses prompted the government to place Fannie and Freddie in conservatorship in September, the companies have played a central role in keeping mortgage interest rates down.
The Federal Reserve in November kicked off a program to drive down mortgage rates by buying up to $500 billion in mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae. The program was expanded in March to allow for up to $1.25 trillion in purchases of mortgage-backed securities.
For a time, the program helped drive interest rates on 30-year fixed-rate loans below 5 percent for borrowers with good credit and sizeable down payments, spurring rush by borrowers to refinance. The Mortgage Bankers Association estimated in March that lenders would refinance $1.96 trillion in mortgages this year, up from $765 billion in 2008.
More recently, worries about the government’s growing debt and the long-term prospects for inflation have helped drive mortgage rates back above the 5 percent mark, cooling the demand for refinancings.
With investors still shunning mortgage-backed securities not backed by Fannie, Freddie and Ginnie Mae, the Obama administration says that for now, it will keep Fannie and Freddie under government control (Ginnie Mae, which guarantees payments on mortgage-backed securities backed mostly by the Federal Housing Administration and Department of Veterans Affairs, has always been a government-owned corporation).
Testifying in December before the House Committee on Oversight and Government Reform on the future of Fannie and Freddie, attorney Thomas H. Stanton urged the government to move the companies from conservatorship into full-blown receivership, and use them as “agents of reform” for the mortgage market .
Stanton, a fellow of the Center for the Study of American Government at Johns Hopkins University, said placing the companies in receivership for five years would remove shareholders from the picture, allowing the companies to price mortgage purchases without having to worry about the conflicting goal of restoring the company’s value to shareholders.
Requiring the companies to serve public purposes, instead of a mix of public and private objectives, could help the Obama administration “turn the insolvency of Fannie Mae and Freddie Mac into an opportunity,” Stanton testified.
Others who see Fannie’s and Freddie’s past practices as one of the root causes of the financial meltdown want to see them privatized or abolished.
Columbia Business School professor Charles Calomiris testified that the government should sell off Fannie’s and Freddie’s assets or split them up into many competing businesses with no government guarantees of their debts or liabilities.
Because of their size and implicit government backing, the GSEs played a role in loosening lending standards that went beyond the volume of subprime and alt-A loans they purchased or guaranteed, Calomiris said.

If you or someone you know is in trouble with their mortgage, there are lots of people who claim that they can help you. The challenge you face, however, is determining who is legitimate and who is running a scam.

As unemployment continues to soar, an increasing number of people are facing serious challenges in making their mortgage payments. Sadly, distressed homeowners have become prime targets for scammers who claim they can help troubled homeowners escape their financial woes. Here are some of the most common real estate mortgage scams.

1. In order for us to negotiate with your lender on your behalf, you must first deed the scammer the property.

People who run this scam will tell you a partial truth: The lender will negotiate only with the owner. This is true. It does not mean, however, that you must deed the property to someone else in order to obtain help. What the scammers aren’t telling you is that you can authorize an attorney or some other qualified individual to represent your interests. There is no need to deed the property to a third party.

2. If you are attempting to obtain a loan workout or a loan modification, don’t rely on a real estate agent.

Unless your agent is a licensed attorney, it is illegal in most states for him or her to negotiate a loan workout or a loan modification with your lender. Your agent can write up offers and present them. In contrast, negotiating the terms of a mortgage workout can be considered as practicing law and thus, may require an attorney. The agent could lose his or her real estate license if deemed to be practicing law without a license.

3. Beware of deeds hidden in refinance paperwork.

This is one of the worst possible scams. The scammer contacts the owner of a distressed property and offers to refinance the property. Hidden in the “refinance” documents is a deed that conveys the property to the scammer. A set of loan documents can be more than 100 pages in length. It’s common for people not to read the documents. Be smart. Carefully review the documents before signing them. More importantly, carefully examine any document that has the word “deed” or that requires a notary. If you are unfamiliar with what types of instruments your state uses to convey property, be sure to find out before signing anything. Better yet, have any documents you are considering signing reviewed by an attorney first.

4. Rental scams

One of the most common mortgage scams involves having you stay in the property as a renter. These scammers ask you to deed your property over to them. You pay them rent and they promise to let you buy the property back at a later date. The scammers pocket your rent and disappear. You end up out of your home. Worse yet, you are still obligated for the debt. Lenders always require written documentation to alter who is responsible for the loan.

5. Avoid scammers who charge upfront fees.

Legal hotline attorneys in Maryland have been receiving reports of attorneys who are running scams as well. These attorneys charge $500 for the homeowner to attend this seminar. The attorney then hands off the homeowner to a real estate agent to handle the transaction. As a rule of thumb, be wary of seminars offering to help you get out of trouble.

6. Make sure you place your “hope” in the right place.

Not all organizations that have “hope” in their names are legitimate. Three of the legitimate “hope” groups are HopeNow.com (888-995-HOPE), preservehomeownership.org, and Housing Options and Planning Enterprises. Each organization can provide you with counseling in terms of your specific situation. There is no fee involved. To locate your state’s chapter of Hope Now, do a Google search using the terms “Hope Now” and the name of your state.

7. Never make a deal with someone that directly solicited you, either by mail, e-mail, telephone, fliers, or in person.

Often times the people who contact you directly to offer you mortgage assistance are running an identity theft scam. They will tell you that they need your Social Security number, credit-card numbers and other confidential information in order to run a credit report. When you provide it, they have everything they need to steal your identity and engage in credit-card fraud.

8. Fill-in-the-blank

Another common scam is to ask you to sign documents where there are blank lines or spaces. Never do this. Once your signature is on the document, the scammer can change the terms of the agreement or could add terms that were not in your original agreement.

9. Never rely on verbal agreements.

There’s an old saying in the real estate business: Verbal agreements are as good as the paper on which they are written. In most states, real estate contracts are binding only if they are in writing. Whatever you want to include in your contract, make sure that it is in writing. Don’t rely on verbal promises. Also, make sure that you have a complete set of copies of anything that you signed or any other documents pertaining to the sale or mortgage(s) on your property.

Perhaps the best way to handle mortgage difficulty is to contact the workout department at your lender (not the customer service number on your mortgage payment). Your lender doesn’t want your property back. In most cases, they will be happy to work with you to find a resolution.

We are upside down and are thinking about selling our home using a short sale. Our agent said that because we had refinanced our property twice, that we could have a problem with “phantom income.” She advised us to talk to our accountant. What does refinancing have to do with this and what is phantom income? — Janice E.

Janice, no matter what your financial circumstances are, it’s smart to talk to your CPA or tax attorney before placing any property on the market. For example, you might think that you can claim the $250,000 (for singles) or $500,000 (for couples) tax break on the sale of your primary residence. However, if you haven’t met all the qualifications in terms of the property being your primary residence, you could end up losing the deduction.

In your case, it’s a good thing that you have a well-informed Realtor who advised you to see an accountant first. When you purchase a home, the original loans that you place on the property are known as “purchase money” loans. Depending upon where you live and the type of instrument used to secure the mortgage, the lender may have limited options in terms of foreclosure on purchase money.

For example, in many states, the lenders cannot collect “deficiency judgments” on purchase-money loans. Their only recourse is to foreclose on the property. If you live in a state that allows deficiency judgments, the lender may be able to force you to sell other assets to pay off the debt. Putting it a little differently, if you own a property in a state that does not allow deficiency judgments, only the property that secures the note is at risk. If you live in a state that does allow deficiency judgments, the court can attach your other assets and order you to sell them to pay back the debt.

The situation becomes much more complicated when you refinance your property. Any loan that is made after the point of initial purchase is no longer considered to be purchase money. “Phantom income” occurs when you sell a property using a short sale and you do not pay off the entire amount of the loan. You can also create phantom income by giving what is known as a deed in lieu of foreclosure. (This means giving the keys back to the bank rather than going through the entire foreclosure process.) In either case, phantom income must be reported to the IRS and may be subject to taxation.

For example, assume that you placed a purchase-money mortgage of $150,000 on your property in 2002, then took out a home equity loan of $25,000 to do some remodeling in 2004, and then placed a third of $50,000 on the property to cover emergency medical costs in 2007.

In the example above, any amount over the $150,000 purchase-money loan could result in phantom income. The amount of phantom income is determined by how much debt relief you receive from the sale. The way the IRS looks at it, is that when you refinanced the property, you received the money. When you failed to pay it back to the lender in a short sale, that money then becomes taxable income. Since the money in the example above was used to improve the property and to pay for medical expenses, the owner may be eligible to deduct part of those expenses against any phantom income that results from a sale. On the other hand, if you are someone who has refinanced your property and spent that money to pay off your credit cards or to buy a car, the probability is that your phantom income will be taxed.

For some people, going through foreclosure may be a better choice. Before you decide to do anything with your property, it is absolutely imperative that you discuss the situation with your CPA or tax attorney to find out the potential consequences of any decision that you may make.