Home refinancing -- wait awhile

Every time a new, lower mortgage rate is announced, more homeowners start thinking about refinancing. Getting out from under a 15, 16, or 17 percent mortgage has been their dream since they bought their home.

At the same time, many other people are holding ''balloon'' mortgages that will come due in the next year or so. They are paying a slightly lower rate than someone holding a conventional mortgage, but under the contract, the entire balance has to be paid off in three to five years. For them, refinancing is a necessity.

''We're seeing much higher demand for mortgage money,'' said Leon Kendall, president of the Mortgage Guaranty Insurance Corporation, a large insurer of residential mortgages in Milwaukee. Much of this demand isfrom people who are refinancing, as well as people reentering the housing market after a long period of high rates, he said.

At many lenders, there is plenty of money available for both new and refinanced mortgages. Several years of high interest helped build a stockpile of unused mortgage money.

Also, bankers hope the new, $2,500 minimum, money market-like accounts that become available Dec. 14 will provide an added source of lendable money.

For those who have a choice, the decision to refinance into a lower interest rate is tempting. Yet it is a step that should be taken with care and a good deal of preparation.

The first question people usually ask is: ''Will mortgage rates keep falling?'' If rates still have some dropping to do, then you should wait a bit before refinancing. Many mortgage experts say the prevailing rate should be at least two percentage points below what you are currently paying, before refinancing is considered.

''Rates will probably drop another 100 to 150 basis points (1 to 1 1/2 percentage points) in the next four or five months,'' says James Christian, chief economist at the United States League of Savings Associations. ''After that, I don't know.''

A survey of economists by the Crittenden Report, a newsletter on real estate financing, finds a similar view. Among the economists surveyed, the average rate is expected to be 13.62 by next April and 13.11 by October. An average rate means there are many financial institutions where consumers can find somewhat lower rates.

If these predictions are right, then now is not the time to actually move ahead with refinancing. If you can afford to keep making the higher interest payments, or if you do not have a balloon mortgage coming due immediately, waiting a few months may prove worthwhile.

What you can do now, however, is begin the homework that will get you ready for refinancing when the time comes.

First, make a list of the financial institutions in your area that write mortgages. This could include commercial banks, savings-and-loans, mutual savings banks, and private mortgage companies. In addition to the institutions' current mortgage rates, they should be asked about origination fees - also known as ''points'' - and prepayment penalties.

Origination fees can vary from 1 percent of the value of the loan to several points. Two percent is fairly common. On a $50,000 mortgage, then, the fee would be $1,000.

Then, the financial institution holding your present mortgage might charge a prepayment penalty. Often, this equals six months' interest on up to 80 percent of the outstanding loan. In other cases, the penalty might be 2 or 3 percent of the balance. You may be able to escape the penalty, however, if you are able to refinance with the same lender who wrote the original mortgage. To keep your business, the lender may be willing to do without the penalty. Also, some mortgages have clauses that prohibit a prepayment penalty after three years.

There may also be new charges for a reappraisal and the lender's legal fees.

When a homeowner is doing this homework, he should decide how long it will take to break even on these refinancing costs. If the percentage differential is two points, it will take about two years to come out even.

But President Kendall at Mortgage Guaranty says that if you find a good deal now while doing your research, with low expenses and a new set of monthly payments that you can manage, there's really not much point in waiting. ''If you can afford it,'' he said, ''do it.''

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