Answer: If you’re on track saving for retirement and your child’s college education, then the smart thing would be to gut it out and get the property paid off. You’re so close to the end of this loan that the majority of your payments go toward principal. Refinancing might lower your payments, but would dramatically increase the amount of interest you’d pay over time.

If you’re stinting your savings, though, the math gets more complicated. You could view the paid-off vacation home as an asset you could tap later for retirement expenses or college. In that case, getting it paid off on the current schedule would make sense. If selling or borrowing against the home in the future isn’t an option, though, then lowering your payments so you can save for your other goals starts to make some sense.

If that’s the option you choose, consider a 15-year loan rather than a 30-year loan. The shorter loan will still dramatically reduce your payment but you’ll pay about 60% less interest over time.

Answer: If your loan was backed by Fannie Mae or Freddie Mac, and if it was originated before June 1, 2009, you may be in luck, thanks to recent improvements to the federal government’s Home Affordable Refinance Program, or HARP.

Federal officials eliminated certain fees and barriers that made lenders reluctant to refinance underwater mortgages. They also eliminated the limit on how far underwater you could be to get help. In the past, you could owe no more than 125% of a home’s value.

You’ll first need to find out whether you have a Fannie Mae or Freddie Mac loan. You can visit http://www.fanniemae.com/loanlookup or call (800) 7FANNIE ([800] 732-6643). You’ll find information for Freddie Mac at http://www.freddiemac.com/corporate or by calling (800) FREDDIE ([800] 373-3343). The toll-free numbers are open from 5 a.m. to 5 p.m. Pacific time.

Borrowers must be current on their mortgage payments with no late payments in the previous six months and no more than one late payment in the previous 12 months. Loans that have been refinanced under the old HARP guidelines aren’t eligible for another refinance.

If your lender isn’t offering HARP refinances, you can search for others that are. You may want to contact a counselor approved by the Department of Housing and Urban Development (referrals at http://www.hud.gov) to help you through the process.

Don’t make the mistake of entering “HARP” or “Home Affordable Refinance Program” into a search engine. Most of the links that will turn up will be to for-profit sites, not all of them reputable. For the real deal, visit http://www.makinghomeaffordable.gov or call (888) 995-HOPE ([888] 995-4673).

Answer: Your lender isn’t under any obligation to help you save money. As a result — and as you’ve discovered — there’s often little advantage in sticking with the lender you have.

Whenever you refinance, you should shop and shop hard. Applying with at least two lenders will allow you to compare refinancing deals. It’s possible that another lender would have given you a low appraisal as well, but at least you wouldn’t be held captive in the way you are now.

If you want to continue with this lender and expect to remain in the home for more than a few years, bring the cash to the closing so you can pay down your loan balance to the point where you won’t need mortgage insurance.

Changes to the vastly-underused Home Affordable Refinance Program (HARP) could actually help as many as 1.6 million homeowners refinance into a more affordable mortgage. It won’t matter how far underwater you are: as long as you’re employed and current on your mortgage, you can qualify for a refinance. (Current means no late payments in the prior six months, and no more than one late in the past 12 months.) Most importantly, you’re not stuck trying to deal with your current lender. You can shop around.

So many government proposals to help homeowners have fallen so far short that it’s tempting to be cynical about yet another announcement of change. But look under the hood of these changes, and you’ll see that federal regulators are abolishing or at least reducing many of the obstacles that kept a lot of people from taking advantage of some of the lowest interest rates in generations. Estimates of how many homeowners could be helped have ranged from 800,000 to 1.6 million.

Granted, this kind of help should have come a long time ago, but it didn’t. Here’s what you need to know now:

Fannie and Freddie loans only. The HARP program covers only loans for primary residences sold to Fannie Mae and Freddie Mac, the taxpayer-owned mortgage investors that currently buy 90% of mortgages. The new, easier refinancing applies only to loans turned over to the agencies before June 2009. To find out if either agency owns your mortgage, check here at Fannie Mae and here at Freddie Mac. When radio host Bob McCormick and I were answering questions about the program this morning on KFWB, we heard from some investors who were hoping for help with rental properties, but that’s not who the HARP program was meant to serve. FHA, VA and USDA loans are not covered; neither are jumbo loans or “portfolio” loans–those kept by the lender, rather than sold to Fannie or Freddie. You’re also not eligible if you already refinanced under HARP.

LTV limit goes away. Under the current program, you can’t qualify for a refinance is you owe more than 125% of the value of your home (your “loan to value” or LTV), and many of the lenders who bothered wouldn’t make loans if you were over 105%. The new version eliminates the limit, although you still have to have less than 20% equity (if your loan is less than 80% of your home value, you won’t qualify for refinancing under this program).

The refi process is streamlined. Typically, requirements for appraisals and extensive underwriting will disappear. That’s because banks are going to be shielded from “buy back” risk from Fannie and Freddie. The threat that they might have to take the loans back has made lenders extra-careful about the loans they make–which means many loans aren’t being made at all. You’ll need to provide proof of employment or another regular source of income, but you won’t need to pay for an appraisal upfront or submit reams of documentation.

Mortgage insurers are on board. Another obstacle to refinancing is private mortgage insurers that have refused to transfer coverage. These insurers have promised to make transfers much easier under the new HARP rules.

Second mortgage lenders are on board. If you have a home equity loan or line of credit, you’ve typically needed to get that lender’s permission to refinance, a process known as re-subordination. Recalcitrant or overloaded second mortgage lenders have prevented plenty of refinancings in the past, but federal officials say the largest lenders have now agreed to automatically re-subordinate second mortgages under HARP.

Risk fees can be waived. Fannie and Freddie have agreed to waive the fees they were charging for riskier borrowers if those borrowers opted for a shorter-term mortgage than the one they currently have. Refinancing into a 15-year mortgage, then, from your current 30-year loan could save you some dough. If you’ve missed previous refinance opportunities because you were under water and you’re several years into your loan, you may find that your new payment isn’t significantly higher than your old one.

Final details of the changes are scheduled to be submitted to lenders by Nov. 15. If you think you may qualify, line up a chat with a HUD-approved housing counselor (find one here) and get ready to take advantage of a government program that could actually help you stay in your home.

Answer: If it were in banks’ best interests to make sure their home loans remained in good standing, we probably wouldn’t be in the real estate mess we’re in today. Banks would have been far more willing to refinance or modify loans than they have been.

In fact, most banks don’t hang on to the loans they make. The loans are sold to investors, and the bank becomes the loan servicer, essentially just processing the payments.

Once you understand that, you understand that a refinance is, in fact, a new loan that must meet the criteria of the investors that will eventually buy the loan. Today, the vast majority of home loans are purchased by Fannie Mae and Freddie Mac, taxpayer-owned entities that already have billions of dollars in bad loans on their books. They aren’t interested in adding any more.

Answer: Refinancing to a 30-year loan can certainly make sense for people who want to lock in the lowest payment and maintain their financial flexibility in the face of possible financial setbacks. You’re also right that this couple seems disciplined enough to make the extra payments to get the loan retired before they do.

However, you missed a key factor: This well-disciplined couple had a mortgage with an interest rate of 5.875%. That indicates they’ve had this mortgage for a while. If they’ve paid down enough of the principal balance, they may be able to refinance to a 15-year loan with a significantly lower interest rate (as in slightly over 3%) without dramatically raising their payments. Many people, when faced with that option, would want to lock in the lower rate.

Answer: The short and obvious answer is that “nothing is the same.”

Home prices are down 33% from their 2006 peak, with even bigger drops in many areas. Lending standards are dramatically tighter as well. When your loan was originally made, lenders might not have cared much if your home’s size or amenities were fudged, or if the wrong “comparable properties” were used to arrive at your home’s value, or if you made the income or had the assets you claimed. Now they care, deeply, about all of those things.

Even if the world hasn’t changed, your property may have. Deferred maintenance could have reduced its value, while improvements may have increased it. Lawsuits or other problems may have popped up that affect the title.

And when you think about it for a moment, you’ll realize that all those loans that were made so easily in the past — with simply a few keystrokes — are what helped lead to the economic mess we’re in today. Yes, the pendulum may have swung too far and made refinancing unnecessarily tough, but the old easy lending standards were simply unsustainable.

Answer: There are no hard-and-fast rules about when to refinance. When refinancing costs were higher, you typically needed a 2-point drop in rates for a new loan to make sense, but that’s no longer true.

Generally, though, you should avoid refinancing if the new loan wouldn’t recoup its costs within two years. Although the loan you’re considering doesn’t charge “points” — a percentage of the loan paid to lower the interest rate — you’ll still be charged other fees. If the lower payments would offset those fees within 24 months, and you plan to stay in the house at least that long, you might consider replacing the loan.

Another factor to consider is how much longer you’ll remain in debt with a new loan and how close you are to retirement. Ideally, you’ll want to be mortgage-free by the time you quit work.

When you’re just a few years into your loan, as you are, this is less an issue than if you’ve paid down your mortgage for five or more years. In the latter case, you should either consider opting for a shorter loan — 15 or 20 years, say — or make extra payments on a 30-year loan if you otherwise wouldn’t pay off the mortgage by the time you’re ready to retire.

photo credit: Qiao-Da-Ye賽門譙大爺

If you’ve got variable rate debt, now is the time to look into fixing your rate.

I wrote this week about the risks of inflation and how prices and interest rates could soar as the economy picks up.

Of course, interest rates are already soaring for many credit card holders. The average credit card rate rose to over 15%, hitting a two-year high, according to IndexCreditCards.com. Even people with good credit scores and on-time payment histories are getting slapped with higher rates, as issuers try to beat the February deadline for the implementation of the credit card reform act.

Here’s what to do:

Mortgages. If you have an adjustable-rate mortgage and don’t plan to move before the rate resets, look into refinancing to a fixed rate if you have some equity in the home. If you don’t have equity, you may be eligible for refinancing under the government’s Making Home Affordable Plan. GET HELP if you go this route–talk to a HUD-approved housing counselor. You can find one HERE.

Credit cards. If you have credit card debt, consider it variable-rate debt, since there’s no such thing as truly fixed rates in the credit card world. Consider getting a three-year, fixed-rate credit union loan to pay off your balances. Interest rates for people with good credit currently average just under 10% for these loans, according to the Credit Union National Association. (If you don’t belong to a credit union, you can find one HERE.) Other options for 3-year, fixed-rate loans are social lending sites such as Prosper and Lending Club. Rates vary according to your credit scores and investor bids but loan rates currently range from 7% to 26%. (Can’t pay off your debt in three years? Then you may be in more trouble than you think. Consider talking to a legitimate credit counselor and a bankruptcy attorney to get a more complete idea of your options.)

HELOCs. Home equity lines of credit are a tougher call. The rates on this type of debt are typically very low and not as subject to the whims of lenders as credit card debt. If you have a home equity line of credit and you’re concerned about being able to pay it when rates rise, however, you could consider a fixed-rate home equity loan or even refinancing your primary mortgage to incorporate the debt and fix the rate.

You also should have a plan for paying off your debt. Read “A debt payoff plan that works” for more.

Answer: In the real estate boom, lenders stopped worrying so much about little niceties like accurate appraisals. With the credit crunch, lenders are suddenly obsessed with appraisals, which typically require comparable sales.

“The problem with this is that there is no way to come up with a realistic estimate of value for properties with unusual construction type because there are rarely comparable sales,” said Dick Lepre, a senior loan officer at RPM Mortgage.  “This includes domes, log homes and straw bale construction.”

What you need to find, Lepre said, is a local bank that intends to hang on to the mortgage, rather than sell it to investors. These lenders tend to be more flexible, but there’s no guarantee you’ll be able to find one willing to refinance your loan.

Your situation should serve as a warning to anyone who’s considering buying an unusual home, Lepre said.

“Anyone purchasing a home with any of these construction types should understand that mortgages are and will always be difficult and [that] it is a lot harder to find buyers,” Lepre said. “It is harder to find buyers because there are a limited number of people who want to live in such homes and also because it is harder for those buyers to find financing.”