For people who maintain healthy savings account balances and for those dependent upon fixed income investments and deposit account withdrawals, low interest rates are discouraging.  However, if you have mortgage debt, low interest rates can provide great opportunity.  Right now if you are paying over 6% for a mortgage loan there is a good chance you can save money by refinancing.  Every situation is unique, so you have to do your homework, but you may find an opportunity to lower both your monthly payment and the total interest paid over the life of the loan.  On the Bankrate.com website you can find general mortgage information and rates as well as a calculator to help you determine if you should refinance.

It is important to identify and minimize the transaction costs of refinancing.  Generally, they all fall into three categories:

1. Prepaid expenses are applied to your escrow account for homeowners insurance and taxes.  Typically there is a balance in your current escrow account at closing with your prior lender, and you will receive a refund.  This refund will offset your out-of-pocket prepaid expenses with the new lender.

2. Closing costs are fees you will pay as part of a standard closing that go towards local taxes, title insurance, attorney fess, etc.  Don’t be afraid to question and negotiate these expenses.

3. Lender fees are everything else not included in the above two categories and include origination fees, document prep fees, processing fees, etc.  You have to be careful with these as the lender may say there is no cost, but when you add up some of the “administrative” fees the number might shock you.  Carefully examine the Good Faith Estimate (GFE) for a list of these costs.  Also, check on these costs at closing as they could change from the original GFE.

By sorting all the costs into these three categories, you are more likely to make an apples-to-apples comparison between lenders.  When you begin looking for a lender to refinance, it is always good to start with your current mortgage company because they may offer to refinance your loan with a reduced amount of paperwork and expense.  Also, consider credit unions as a potential source for a mortgage refinance.

Lastly, don’t forget to examine other debts for possible reductions in interest cost.  If you have good credit you may find a different credit card or home equity loan can be found with lower interest costs.

The positive story of Clayton Homes stands out in the current subprime mess. A builder and financer of modular homes dealing primarily with the lower income market segment, Clayton Homes has bucked the trend of rising mortgage default rates. Their secret – practice conservative, old fashioned lending.

Their story highlights two big issues in the recent liquidity crisis:  First, institutions originating and selling off bad loans did not have to live with the consequences of their actions. Second, Clayton was careful in who they lent to.

A great take-away for all of us is not to forget that our decision-making (in business, as families, etc.) will be better when we  spend more time considering the cost of financial decisions knowing that we will be personally affected by any negative long- term consequences.