Fed's rate cuts ignite a rush to refinance

"But there is a glitch," he said. "The Texas company that services their mortgage will not let them out of the $11,000 prepayment penalty. They will shortly join the ranks of too many people who will lose their houses because of some other person's greed."

When Jay Stillman, 40, bought his Mount Laurel house several years ago, he opted for an adjustable rate of 1.95 percent.

It was a Pick A Pay mortgage - a cash-flow ARM that comes with four payment options: minimum, interest-only, fully amortizing, and a five-year fixed monthly payment. The mortgage was ideal for someone in sales whose monthly income changes.

Four years ago, as the teaser rate began rising, Stillman "locked into a 6.8 percent rate for a nominal fee."

Now, with what he said was about 50 percent equity in his house in a neighborhood that has gained substantially in value since he bought, he is refinancing into a 30-year fixed mortgage with an annual percentage rate of 5.375 percent.

"I had considered a 15-year fixed rate, but my accountant said I should look at the house as an investment and not pay the mortgage off more quickly," Stillman said.

Keeping your finances in order "is like exercise - you have to keep working at it," said Beachkofsky, the Lansdale homeowner.

When he and his wife bought their first house in Lower Gwynedd seven years ago, they opted for an ARM "because we knew we'd be out before the teaser rate of 5.25 percent adjusted. The ARM at that low rate was a better fit than a 30-year fixed at a much higher rate."

For his current house, Beachkofsky is relieved that he was able to catch the lower rate just in time.

"I just wish I was as disciplined with exercising as I am with finance," he said.