Refinancing

Dear Liz: We just refinanced our $100,000 mortgage into a 15-year fixed-rate loan at 3.75%. We have an extra $500 a month and want to know what we should do with it. Should we use the money to pay off the mortgage early, increase the contribution to my 403(b), or start a rainy day fund and try to save up to three months of my take-home salary? I'm 44, my wife is 35, and we have three kids ages 5, 3 and 9 months. I would like to retire in 16 years. Answer: At least two of your children won't be through college by the time you want to retire, so you may need to rethink your plans unless you have an exceptionally generous pension or a lot of money saved in that 403(b)

Barely a week goes by without someone contacting me to say that a bank is trying to steal their home. Often, this "theft" is the result of unpaid mortgages that have resulted in foreclosure. But every so often, I hear from someone who seems to have become genuinely entangled in a banking system that is both rigid in its dealings with customers and deaf to legitimate pleas for help. That's the case with Lana Ashford, who faces the loss of her Marina del Rey condo to Bank of America because of what turned into the refi from hell.

Brightening economic signs are pushing interest rates higher, choking off a surge in home refinancing at the same time that buyers are showing more willingness to purchase houses at today's beaten-down prices. FOR THE RECORD: Mortgage rates: An article in the Dec. 3 Business section about refinancing activity for home loans attributed a survey of mortgage rates to Fannie Mae. The rates were actually released by Freddie Mac. ? Fannie Mae said Thursday that the typical rate mortgage lenders were offering on 30-year fixed loans was 4.46% this week, up from last month's record low of 4.17%.

When the Federal Reserve recently rolled out its plan to pump $600 billion into the credit markets, many homeowners and buyers might have figured that because mortgage interest rates are now likely to fall again, why not postpone the loan application they were contemplating? Fed Chairman Ben S. Bernanke offered implicit support for that scenario when, in a Washington Post op-ed column Nov. 4, he wrote that as a byproduct of the $600-billion infusion "lower mortgage rates will make housing more affordable and allow more homeowners to refinance.

A day after congressional elections that repudiated President Obama and slammed the door on any new economic stimulus, the Federal Reserve stepped in with a controversial plan to spur the faltering U.S. economy by pumping $600 billion into the financial system. The Fed's much-anticipated but unconventional strategy is aimed at driving down long-term interest rates in the hope of encouraging more spending and borrowing by both consumers and businesses. Together with funds from an existing purchase program, the central bank could now buy as much as $900 billion in new Treasury bonds by the end of June.

Dave Richards wants to retire in 15 years — and he doesn't want to still be paying his mortgage when he starts taking it easy. So last month the 43-year-old Thousand Oaks resident, taking advantage of record low interest rates, refinanced his 30-year mortgage with a 15-year loan. "The payment is more per month, but I'm comfortable with that," said Richards, president of a Westlake Village company that arranges sales of small businesses. "It's worth it to be able to retire at 58 with a zero mortgage.

The number of applications for loans to finance housing purchases remained unusually low last week despite record-low interest rates, suggesting no imminent recovery in home sales, a mortgage banking group said Wednesday. But an index of applications for loans to refinance mortgages jumped to a 16-month high, the Mortgage Bankers Assn. said The trade group reported that purchase-loan applications fell 0.4% last week from the week before, but were up 1.8% after the numbers were adjusted for seasonal factors.

Homeowners who owe so much on their mortgages that they can't refinance may want to consider bringing some money to the table to take advantage of today's near record-low interest rates. That's what Frank Nothaft did. And he isn't alone. Millions of people in recent months have become part of a phenomenon known as "cash-in" refinancing. "It's picked up dramatically," says Nothaft, chief economist at mortgage giant Freddie Mac, the government-chartered enterprise that purchases mortgages from lenders.

The debt crisis in Europe that has unhinged global stock markets also has helped push U.S. mortgage rates back toward record lows, prompting a surge in refinancing. Freddie Mac reported Thursday that the average rate offered on 30-year fixed-rate home loans sank to 4.78% this week, down from 4.84% last week and not far from the record low of 4.71% set late last year. The rates are tracking a drop in yields on 10-year Treasury bonds, which have been pushed down by investors buying them up as a haven from the troubles in Europe.

The Obama administration unveiled new measures Friday aimed at getting lenders to reduce the principal balances on problem mortgages and to refinance "underwater" borrowers, who owe more than their homes are worth, into government-sponsored loans. The initiatives are part of an escalating effort to buoy the housing market -- and an acknowledgment that more steps are needed to prevent a fresh wave of foreclosures. One provision will allow many unemployed homeowners to get three to six months of reduced mortgage payments while they look for a job. But the most significant change to the $75-billion program is aimed at helping underwater borrowers.