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Twelve Ways To Lower Your Homeowners Insurance Costs

Consumers Guide to Mortgage Refinancing
Would Refinancing be Worth It?
Refinancing Could be a Good Idea For Homeowners
Should You Refinance Your A.R.M.?
What Are the Costs of Refinancing?

Lenders, Attorneys Review Fees

Loan Origination Fees And Points

Appraisal Fees

Prepayment Penalty


The purpose of this book is to assist you in lowering your monthly mortgage payments. Several
options will be made available to you to achieve this goal.

Twelve Ways to Lower Your Homeowners Insurance Costs

Insurance is a very competitive business and the price you pay for your homeowners insurance
can vary by hundreds of dollars, depending on the insurance company you buy your policy from.
Companies offer several types of discounts, but they don't offer the same discount or the same
amount of discount in all states. That's why you should ask your agent or company representative
about any discounts available to you. Here are some things to consider when buying
homeowners insurance.

1. Be sure to shop around.
It'll take a few phone calls, but they could save you a good sum of money. Ask your friends,
check the yellow pages or call your state insurance department (phone numbers are on the back
page of this brochure). Also check consumer guides, insurance agents and companies. This will
give you an idea of price ranges and tell you which companies or agents have the lowest prices.
But don't consider price alone.

The insurer you select should offer both a fair price and excellent service. Quality service may
cost a bit more, but it provides added conveniences, so talk to a number of insurers to get a
feeling for the type of service they give. Ask them what they would do to lower your costs.
Check the financial ratings of the companies, too. Then, when you've narrowed the field to three
insurers, get price quotes.

2. Raise your deductible.
Deductibles are the amount of money you have to pay toward a loss before your insurance
company starts to pay according to the terms of your policy. Deductibles on homeowners
policies typically start at $250. By increasing your deductible to $500, you could save up to 12
percent; $1,000, up to 24 percent; $2,500, up to 30 percent; and $5,000, up to 37 percent,
depending, of course, on your insurance company.

3. Buy your home and auto policies from the same insurer.
Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off
your premium if you buy two or more policies from them.

4. When you buy a home...
Consider how much insuring it will cost. Because a new home's electrical, heating and plumbing
systems and overall structure are likely to be in better shape than those of an older house,
insurers may offer you a discount of 8 to 15 percent if your house is new.

Check its construction, too. Brick, because of its resistance to wind damage is better in the East;
frame, because of its resistance to earthquake damage, better in the West. Choosing wisely could
cut your premium by 5 to 15 percent.

Avoiding areas that are prone to floods can save you $400 or so a year for flood insurance.
Homeowners insurance does not cover flood-related damage. If you do buy a house in a flood-
prone area, you'll have to buy a flood insurance policy, too.

Does your town have full-time or volunteer fire service? And is your house close to a hydrant or
fire station? The closer your house is to firefighters and their equipment, the lower your
premium will be.

5. Insure your house, not the land.
The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in
your homeowners policy. So don't include its value in deciding how much homeowners
insurance to buy. If you do, you'll pay a higher premium than you should.

6. Beef up your home security.
You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-
bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you
install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station
or other monitoring facility. These systems aren't cheap and not every system qualifies for the
discount. Before you buy such a system, find out what kind your insurer recommends and how
much the device would cost and how much you'd save on premiums.

7. Stop smoking.
Smoking accounts for more than 23,000 residential fires a year. That's why some insurers offer to
reduce premiums if all the residents in a house don't smoke.

8. Once you retire...
Retired people stay at home more and spot fires sooner than working people. Retired people
have more time for maintaining their homes, too. If you're at least 55 years old and retired, you
may qualify for a discount of up to 10 percent at some companies.

9. See if you can get group coverage.
Alumni and business associations often work out an insurance package with an insurance
company, which includes a discount for association members. Ask your association's director if
an insurer is offering a discount on homeowners insurance to you and your fellow graduates or

10. Stay loyal to your insurer.
If you've kept your coverage with a company for several years, you may receive special
consideration. Several insurers will reduce their premiums by 5 percent if you stay with them for
three to five years and by 10 percent if you remain a policyholder for six years or more.

11. Compare the limits in your policy and the value of your possessions at least once a year.
You want your policy to cover any major purchases or additions to your home. But you don't
want to spend money for coverage you don't need. If your five-year-old fur coat is no longer
worth the $20,000 you paid for it, you'll want to reduce your floater and pocket the difference.

12. If you're in a government plan...
If you live in a high-risk area --- say, one that is especially vulnerable to coastal storms, fires, or
crime --- and have been buying your homeowners insurance through a government plan, you
should check with an insurance agent or company representative. You may find that there are
steps you can take that would allow you to buy insurance at a lower price in the private market.

A Consumer's Guide to Mortgage Refinancing

This was prepared in consultation with the following organizations:
American Bankers Association
Appraisal Institute
Comptroller of the Currency
Consumer Federation of America
Credit Union National Association, Inc.
Federal Deposit Insurance Corporation
Federal Home Loan Mortgage Corporation
Federal National Mortgage Association
Federal Reserve Board's Consumer Advisory Council
Federal Trade Commission
Independent Bankers Association of America
Mortgage Bankers Association of America
Mortgage Insurance Companies of America
National Association of Federal Credit Unions
National Association of Home Builders
National Association of Realtors
National Credit Union Administration
Office of Special Adviser to the President for Consumer Affairs
Savings and Community Bankers of America
The Consumer Bankers Association
U.S. Department of Housing and Urban Development
Veterans Administration

The Federal Reserve Board and the Office of Thrift Supervision has prepared a booklet on
refinancing your mortgage in response to a request from the House Committee on Banking,
Finance and Urban Affairs and in consultation with many other agencies and trade and consumer
groups. It is designed to help consumers understand an important aspect of home financing.

They believe a fully informed consumer is in the best position to make a sound financial choice.
If you are considering refinancing your home loan, this booklet will provide useful basic
information about refinancing. It cannot provide all the answers you will need, but we believe it
is a good starting point.

A Consumer's Guide to Mortgage Refinancing
If you are a homeowner who was lucky enough to buy when mortgage rates were low, you may
have no interest in refinancing your present loan. But perhaps you bought your home when rates
were higher. Or perhaps you have an adjustable-rate loan and would like to obtain different

Should you refinance? This manual will answer some questions that may help you decide. If you
do refinance, the process will remind you of what you went through in obtaining the original
mortgage. That's because, in reality, refinancing a mortgage is simply taking out a new mortgage.
You will encounter many of the same procedures-and the same types of costs-the second time

Would Refinancing Be Worth It?
Refinancing can be worthwhile, but it does not make good financial sense for everyone. A
general rule of thumb is that refinancing becomes worth your while if the current interest rate on
your mortgage is at least 2 percentage points higher than the prevailing market rate. This figure is
generally accepted as the safe margin when balancing the costs of refinancing a mortgage against
the savings.

There are other considerations, too, such as how long you plan to stay in the house. Most sources
say that it takes at least three years to realize fully the savings from a lower interest rate, given
the costs of the refinancing. (Depending on your loan amount and the particular circumstances,
however, you might choose to refinance a loan that is only 1.5 percentage points higher than the
current rate. You may even find you could recoup the refinancing costs in a shorter time.)

Refinancing can be a good idea for homeowners who:
1) Want to get out of a high interest rate loan to take advantage of lower rates. This is a good idea
only if they intend to stay in the house long enough to make the additional fees worthwhile.

2) Have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the certainty of
knowing exactly what the mortgage payment will be for the life of the loan.

3) Want to convert to an ARM with a lower interest rate or more protective features (such as a
better rate and payment caps) than the ARM they currently have.

4) Want to build up equity more quickly by converting to a loan with a shorter term.

5) Want to draw on the equity built up in their house to get cash for a major purchase or for their
children's education

If you decide that refinancing is not worth the costs, ask your lender whether you may be able to
obtain all or some of the new terms you want by agreeing to a modification of your existing loan
instead of a refinancing.

Should You Refinance Your ARM?
In deciding whether to refinance an ARM you should consider these questions:
1) Is the next interest rate adjustment on your existing loan likely to increase your monthly
payments substantially? Will the new interest rate be two or three percentage points higher than
the prevailing rates being offered for either fixed-rate loans or other ARMs?

2) If the current mortgage sets a cap on your monthly payments, are those payments large enough
to pay off your loan by the end of the original term? Will refinancing to a new ARM or a fixed-
rate loan enable you to pay your loan in full by the end of the term?

What Are the Costs of Refinancing?
The fees described below are the charges that you are most likely to encounter in a refinancing.
1) Application Fee. This charge imposed by your lender covers the
initial costs of processing your loan request and checking your credit report.
2) Title Search and Title Insurance. This charge will cover the cost of examining the public
record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued
by a title insurance company, that insures the policy holder in a specific amount for any loss
caused by discrepancies in the title to the property.

Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue
rate. You could save up to 70 percent of what it would cost you for a new policy

Because costs may vary significantly from area to area and from lender to lender, the following
are estimates only. Your actual closing costs may be higher or lower than the ranges indicated
Application Fee $75 to $300
Appraisal Fee $150 to $400
Survey Costs $125 to $300
Homeowner's Hazard Insurance $300 to $600
Lender's Attorney's Review Fees $75 to $200
Title Search and Title Insurance $450 to $600
Home Inspection Fees $175 to $350
Loan Origination Fees 1% of loan
Mortgage Insurance 0.5% to 1.0%
Points 1% to 3%

Lender's Attorney's Review Fees. The lender will usually charge you for fees paid to the lawyer
or company that conducts the closing for the lender. Settlements are conducted by lending
institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for
the buyer and seller. In most situations, the person conducting the settlement is providing a
service to the lender. You may also be required to pay for other legal services relating to your
loan which are provided to the lender. You may want to retain your own attorney to represent
you at all stages of the transaction including settlement.

Loan Origination Fees and Points. The origination fee is charged for the lenders work in
evaluating and preparing your mortgage loan. Points are prepaid finance charges imposed by the
lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage
note. One point equals one percent of the loan amount. For example, one point on a $75,000 loan
would be $750. In some cases, the points you pay can be financed by adding them to the loan
amount. The total number of points a lender charges will depend on market conditions and the
interest rate to be charged.

Appraisal Fee. This fee pays for an appraisal which is a supportable and defensible estimate or
opinion of the value of the property.

Prepayment Penalty. A prepayment penalty on your present mortgage could be the greatest
deterrent to refinancing. The practice of charging money for an early pay-off of the existing
mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are
forbidden on various loans including loans from federally chartered credit unions, FHA and VA
loans, and some other home-purchase loans. The mortgage documents for your existing loan will
state if there is a penalty for prepayment. In some loans, you may be charged interest for the full
month in which you prepay your loan.

Miscellaneous. Depending on the type of loan you have and other factors, another major expense
you might face is the fee for a VA loan guarantee, FHA mortgage insurance, or private mortgage
insurance. There are a few other closing costs in addition to these.

In conclusion, a homeowner should plan on paying an average of 3 to 6 percent of the
outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying
off any second mortgages that may exist

One way of saving on some of these costs is to check first with the lender who holds your current
mortgage. The lender may be willing to waive some of them, especially if the work relating to
the mortgage closing is still current. This could include the fees for the title search, surveys,
inspections, and so on.

The information contained in this manual is intended to help you ask the right questions when
considering a possible refinancing of your loan. It is not a replacement for professional advice.
Talk with mortgage lenders, real estate agents, attorneys, and other advisors about lending
practices, mortgage instruments, and your own interests before you commit to any specific loan.

Ask your lender or real estate agent for the following related pamphlets:

A Consumers Guide to Mortgage Settlement Costs
A Consumer's Guide to Mortgage Lock-Ins
Consumer Handbook on Adjustable Rate Mortgages


This publication is designed to provide accurate and
authoritative information with regard to the subject matter
covered. It is sold with the understanding that the publisher
is not engaged in rendering legal, accounting, or other
professional advice. If legal advice or other professional
assistance is required, the services of a competent
professional person should be sought.


From the “Declaration of Principals” jointly adopted by a
committee of the American Bar Association and a
committee of Publishers and Associations. & The How To Network, individually or corporately, does
not accept any responsibility for any liabilities
resulting from the actions of any parties involved.



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