Refinancing your home: saddled with a double-digit mortgage? It's not too late to save thousands on your home loan.

When Mary Walker bought her $200,000 home in 1988, the interest on her 30-year fixed-rate mortgage was an onerous 13 1/2%. Four years later, she refinanced her loan, bringing the rate down to a more manageable 9.5%. Then this past summer, with interest rates plunging to a 25-year low, Walker refinanced her Mitchellville, Md., home once again. But this time, she went for an adjustable-rate mortgage (ARM), an option that seemed irresistible with its initial rate of just 4.5%.

Why the third round of refinancing? Thanks to her new ARM, her monthly payments will drop by nearly 34%--from $2,462 to $1,619. She could have taken a 30-year mortgage at 6.8% with a monthly payment of $2,000. But the 16-year veteran of Digital Equipment Corp. recently left her position as sales program manager to start New Horizons Consulting, a marketing and consulting company. "I figured I would need as much capital as possible to get my business off the ground," she says.

Walker is one of a slew of homeowners who've jumped on the ever-more-popular refinancing bandwagon. Just when everyone thought rates had bottomed out, 30-year mortgage rates fell below 7% in September--their lowest point since 1968. The result was a new wave of homeowners rushing to refinance--some, like Mary Walker, for the second or third time within two years.

Any homeowner paying above 8.5% interest is a good candidate for refinancing, says Terry D. Gray, chairman and president of Community Lending Corp. In College Park, Md. Also, experts advise that you plan to be in the home for at least four years. "Otherwise, you won't be able to recoup closing costs and fees that could eat up as much as 3% of the loan," says Gray.

YOUR OPTIONS

Right now, the average rate on traditional 30-year loans is about 6.8%, compared with 9% in 1991. Rates on 15-year fixed mortgages average 6.4%. No doubt, a 30-year fixed-rate mortgage is more common. But as rates become more attractive, some homeowners are smartly opting for shorter loan terms. Granted, there are issues to consider when cutting your payback time in half. But a quick look at the math shows that the tradeoff--higher payments over a shorter period--is well worth it: By paying off a $100,000 loan over 15 years instead of 30 (see chart), a borrower stands to save a staggering $79,742 in interest payments alone.

MORTGAGE MANIA

Nationwide averages for fixed- and adjustable-rate mortgages on a $100,000 home loan.

                                                    QUALIFYING
                                       TOTAL          GROSS
MORTGAGE         AVERAGE  MONTHLY     INTEREST       MONTHLY
  TYPE            RATE    PAYMENT    PAYMENTS        INCOME
30-Year Fixed     6.84%    $654.59   $135,653.02     $2,337.82
15-Year Fixed     6.41%    $866.17   $ 55,910.13     $3,093.47
Adjustable Rate   4.18%    $487.85   $ 75,626.22(*)  $2,376.07(**)

(*)Calculations based on initial rate of 4.18% only, rate and interest payments subject to rise.

(**)Under current Federal National Mortgage Association and Federal Home Loan Mortgage Corp. regulations, borrowers must be qualified to borrow money at a minimum rate of 7%; interest would be paid at the regular rate of the mortgage.

Source: HSH Associates, Butler, N.J., September 1993.

"In most cases, homeowners break even with their existing mortgage payments while cutting the time in half," says Gregory St. Etienne, executive vice president at Liberty Bank & Trust Co. in New Orleans. Take, for example, a homeowner currently paying a 10% interest rate on a 30-year mortgage for a $100,000 home. That individual refinances with a 15-year rate at 7%. The monthly payment may be $21 more, but the savings over the long term is greater.

The ARM, another option over the 15- or 30-year fixed-rate mortgage, is fast coming back into favor. With an ARM, interest rates flucturate depending on various economic conditions and indicators, such as CD rates and Treasury yields. In turn, monthly payments are "adjustable." Lenders usually charge lower initial rates for ARMs than other loans, because the homeowner shares the risk if interest goes up.

ARMS are attractive to borrowers because they offer a lower monthly payment for a limited period of time, observes Gray. The lower monthly payment lets you recoup from the closing costs associated with refinancing or keep household expenses down until you are in a better financial situation. This explains why ARMs are inviting to younger homeowners who expect their salaries to grow significantly. Even so, most lenders look to "qualify" homeowners at a rate that's about two percentage points higher than the initial, or teaser rate. In other words, their gross monthly income must be sufficient to sustain payments at the higher rate.

While ARMs vary from bank to bank, there are a couple of key features that homeowners should watch for:

* How quickly do rates change, and is there a ceiling, or cap, on how much the rate can rise within a given time-frame? For the first six months the interest rate on most ARMs are fixed. Thereafter, rate increases may be capped at 2% for one-to two-year periods. So, even if your ARM has an initial rate of 4.5%, the worst to expect would be a rate of 6.5% after a year or two.

* Is the ARM convertible? After a period of time, some ARMs can be converted to a fixed rate. Of course, there's usually some cost involved, but it's usually no more than a few hundred dollars.

* Can you really handle the stress of bumped-up payments? If you're a handwringer, the answer may be no, warns LeCount Davis, a certified financial planner and president of Financial Services Network in Washington, D.C. "Some people, by the mere way they handle their finances, should stay far away from ARMs." The problem? Borrowers are fooled by a temporary sense of greater wealth, and go out and create more debt. "Then comes the bump in rates and they have a hard time paying the higher mortgage."

CLEARING HURDLES IN REFINANCING

Regardless of how much equity you have in your home, refinancing isn't necessarily a snap. "Over 60% of the people who come to me have credit problems," says Gray. This may come as a shock to some folks, but "even if you have one late payment in the past 12 months, the odds are the refinance will be turned down."

Another barrier to refinancing is lack of cash reserves. Most lenders like to see at least three to six months of your net income in savings. This rule can be averted, perhaps with a cash gift from a relative.

One hurdle you can't overcome, however, is a low appraisal. In some areas of the country where the economy has been very poor, the market price of many homes has slipped below the mortgage value. In other words, the house may be worth only $150,000, while the mortgage is for $200,000. Unless there was a substantial cash outlay, no bank would refinance in a situation like that.

When refinancing, you'll go through fewer hoops than when applying for your first mortgage. Still, the job of substantiating the information on your application can be rigorous. Homeowners are typically asked to supply two years of tax returns and W-2 forms, a copy of their homeowners insurance policy and at least three months of bank statements.

With your paperwork in order, an appraiser is called in to put a market value on the home. (Lenders charge about $250 for an appraisal plus $60 for a credit check; some banks may tack on an application fee.) Next, a title search is done to make sure there are no liens against the home. The entire process, from first visit to closing, can run anywhere from 30 to 45 days.

Remember, no matter what type of loan you choose, there are many variables to consider, including rates, monthly payments, fees and points. Just make sure you know what you are getting into before you join other refinancers at the bank door.

F.Y.I. INVESTOR PERKS & FREEBIES

Hunting for a handout? Coveting some coupons? Well, as a shareholder in a corporation, you may be in line for any number of company perks. Giants like Quaker Oats and Wendy's International, for instance, enclose coupons with their annual reports. Disney stockholders are entitled to a slew of theme-park discounts. To get what's coming to you, put in a friendly call to the company's shareholder's relations department.

MAKING $ SENSE

How much should you save for retirement? How much will it cost you to send your children to college? A financial software package called Per%Sense, from San Francisco-based Ones & Zeros Inc. (800-882-2764), will help you answer questions like these. And no, you don't need a degree in finance to make smart decisions about loans, mortgages, leases, investments or insurance. This program is more than consumer-friendly, making it easy for you to do your own financial calculations on a PC. You can figure out payment schedules, loan amortizations and anything else that varies with interest rates over time. The program sells for $49.99.

MUTUAL FUND UPDATE

Folks who favor utilities funds are lately getting a charge out of their investments. Thanks to falling interest rates, these high-yielding funds have outpaced the S&P 500 by more than 900 basis points in the past year, according to Chicago-based Morningstar Mutual Funds. As a group, utilities are up about 15% thus far. As specialty funds go, utilities can't match the 54% rise for precious metals or 20% gain for natural resources. But for steady-as-you-go fund seekers, that's not bad at all.

In fact, the long-term track record for this group is far from shabby. Over the last three-, five- and 10-year periods, utilities have garnered gains above the average stock fund and at less risk.

In general, utilities come in four stripes: communications, electric, water and natural gas. Of these sectors, telephone companies probably offer the brightest prospects for increasing wealth.

But as a group, can utilities continue a repeat performance? If rates rise tremendously, no. There's already some concern that utility stock prices are becoming overinflated. Our advice? Consider these stocks as long-term (five- to 10-year) holds.

F.Y.I. EMPLOYEE BENEFITS

Shifting demographics--namely, more women and middle-aged people in the workforce--will affect health and retirement benefits in the future, says the Washington, D.C.-based Employee Benefit Research Institute (EBRI).

Because these changes impact the labor supply, employers are faced with having to restructure employee benefits packages to accommodate workers, says EBRI President Dallas Salisbury.

A more even distribution in the ages of workers, for example, could result in a compensation package where earnings automatically rise as employees get older. The elderly population is expected to grow about 20% to 69.8 million by 2030, when the last of the baby boomers reach 65.

Also, greater life expectancy could raise the retirement age beyond 67. This could increase the future cost of Social Security financing and Medicare coverage.

EBRI also cites the Family and Medical Leave Act as an example of a public policy response to women's increased labor force participation.

PRESERVING YOUR ESTATE

Did you know that your estate, built over a lifetime, can be dismantled by the IRS in nine months? Many families have been shocked to discover that estate taxes were as high as 75% of their net worth. Under the Clinton Administration that figure may get higher, say some experts.

For this reason, individuals--especially business owners--should take full advantage of their ability to make tax-free gifts. You could give away $10,000 each year to an unlimited number of beneficiaries during your lifetime rather than hold on to all of your money until you die. And married couples can give away $20,000 a year.

As long as the money qualifies as a no-strings-attached gift, it won't reduce the $600,000 minimum limit before estate taxes kick in.