refinancing advice?

[tickbitty]

Anyone here know much about refinancing?

We bought 6 yrs ago at peak prices. Would like to refinance, would love to lower our payments but if we could get a much shorter mortgage for about what we pay now, that would seem prudent even if it's tough to make the payment. The bank that has our mortgage offers a couple programs that would be easy, (no new appraisal etc) but the interest rates are not NEARLY as low as those you might see advertised on bankrate.com or etc. Are the rates you see on that kind of website even realistic or do you end up paying for it in other ways?

 

[jimbom]

Here is a government decision aid. I prefer government to commercial or for-profit sites for financial assistance.

http://www.fhaloancorp.com/calculators/should-i-refinance.php

There are other state/federal sources on the net. Try a few to see if you get the same answer.

 

[stee6043]

I bought our home 5 years ago at what I thought was a great price even then. I've toyed with refinancing several times in the past 18 months. I'm actually talking to the bank right now about the newest "Making Home Affordable" offerings. Is your mortgage backed by Fannie Mae? If so, this might be your best option since it does not require an appraisal typically.

For me it looks like most rates are 4.25-4.5% (APR) for very good credit if you have 20% equity, 30 year fixed. Add 1/4% if you have a second mortgage. Getting into the 3% ballpark will take big time money (points).

Getting a current appraisal should be step one for anyone these days not going the Fannie Mae route. Lenders will tell you all kinds of good news until you get that breath taking appraisal back. And they are not nearly as cheap as they used to be ($400+).

 

[dave11]

Also, banks often don't offer their best rates to refinancers, as opposed to new customers, as they want to bring in more business. Also, they stand to lose money by lowering your interest rate.

They know you can't walk away as easily, as the costs to transfer the mortgage to another bank would offset much of the savings.

A lot also has to do with how "eager" the bank is to lend money, due to its own philosophy, external regulations, and how much cash they have on hand to loan out. Banks that are more eager to loan will have lower rates, and will make other banks seem "stingy" by comparison.

 

[mayhem]

Personally I would avoid going to a place like bankrate.com or lendingtree.com, they're going to give you what are probably artificaially low rate quotes that are not binding and will probably go up for some unknown, random reason when you do an app. And regarldless, these placesa re going to tend to pair you up wiht either a giant bank like BofA or (god forbid) a mortgage company like Countrywide was.

Avoid giant banks. Avoid mortgage companies. They're collectively a significant part of the reason the economy is in the state its been in for the last few years

Deal with local banks and Credit Unions. They employ people in your community. It is true that your loan will probbaly be sold to another company, most smaller banks don't retian their own loans, but they will always service the loans which is what you really need.

 

[kettensäge]

I'd be wary of the online option. Read the fine print carefully. I refinanced with my original lender only 1 year into my mortgage dropped the payment over 120 bucks and the rate by a little over a full percent.
The loan was no longer considered a mortgage but was a consumer loan with the house as collateral. Anyway 8 1/2 yrs later it's paid off.

 

[spacecowboyIV]

Anyone here know much about refinancing?

We bought 6 yrs ago at peak prices. Would like to refinance, would love to lower our payments but if we could get a much shorter mortgage for about what we pay now, that would seem prudent even if it's tough to make the payment. The bank that has our mortgage offers a couple programs that would be easy, (no new appraisal etc) but the interest rates are not NEARLY as low as those you might see advertised on bankrate.com or etc. Are the rates you see on that kind of website even realistic or do you end up paying for it in other ways?

It sounds like what your bank is offering is a no-closing cost refinance, if thats what it is and you want to avoid a couple grand closing cost, jump on it. However these will always carry a higher rate than the advertised rates to account for the lack of upfront cost.

If you are looking at a conventional refinance, just like any big ticket item you need to shop around and looking at the making home affordable plan as one poster mentioned as well as looking if there are any other programs you might qualify for would be the first thing to do.

Do not let your payment be so high that it is tough to pay it every month. a good general rule of thumb is to keep all your debt payments (mortgage, cars, etc) to less than 30% of your gross income (income before taxes are taken out). Many banks will not lend to someone who is above 32% or 38% for some.

 

[woodgeek]

I bought at the same time as the OP, and have refi-ed twice in the last three years. Both times with outfits that I connected with through the Zillow mortgage marketplace. Both outfits were fine, and locked me rates that were in line with the statewide average rate (also reported on the same site).

I never trusted the bank refi option--I think they exist to lure people in, and then convince them that refiing is either not a good option, or to give them a non-competitive rate.

A story, the first mom and pop outfit I refied with sold my loan to one of the TBTF banks (they told me they would do this beforehand). When rates fell and I decided to refi again, I thought I would go to the same outfit (I knew them already). They were all nice and everything, but the appraisal came in about 20% below my best guess (I had nailed it the first time), queering the whole deal. A few months later I rolled the dice with a new outfit, and the appraisal came in right at my best guess (looking at comps online) and it went through. I am convinced that refi appraisals are crooked. If a bank wants to sell you a loan, they can make the appraisal work; if they don't, they can make it sink.

Bottom line, if you haven't refied in six years, DO IT. Its money in the bank. I dropped my payments AND my term, and am saving ~$100k net over the next 15 years, for a few hours of filling out paperwork.

I assume you can compute your savings for a given plan yourself--play with an online mortgage calculator yourself with different scenarios, and look at total cost of ownership. Don't trust 'them' to tell you the best deal--most of the time they don't know themselves. The one subtle thing--remember that if you save a lot in interest, your tax bill will go up. That is, if your marginal tax rate were 25%, your net savings are only 75% of your savings in interest.

 

[Hogwildz]

Refi'd back in March with my current mortgage holder WF.
Cost me absolutely nothing. Nada, zip zilch.
Went from 5.875 to 4.375
I went from a 30 year down to a 15 year, and costs $75.00 more a month.

Can't get the deal 2x, but might refi again, this time saving that $75.00 per month for 15 years. Been dumping $250,00 extra to principal a month, and hoping to have it paid of in another 10-12 yrs.

 

[maverick06]

ditto the above... bought at the peak. Refinanced a few years ago (bought a lot of points because i didnt think rates would get lower, they did, but i still have a good rate). Spending a little more a month, cut the term in half, and dropped the rate a lot! Over the life of the mortgage I will save enough for a small house.... seemed like a good idea... I think a lot depends on how long you want to be there, and what else you have your money doing.... for me this was the safest bet. I went with the same credit union, they have treated me well and had a good rate.

if you go off an online place be very careful about rates going up or other hidden fees. I went through a credit union I am part of. Sure cant wait to be done with the mortgage... but thats a long ways off...............

 

[tickbitty]

Thanks, everyone. The offer the bank gave me is a "HARP" product which requires no qualifying or appraisal. As far as I can tell, there are closing costs but they are rolled in? They offered a 30 yr at 4.57, a 20 yr at 4.47, and a 20 yr at 3.885 APR. I think we probably will have to check with another "local" bank or credit union and see if we can get a better one. Thank you all for the advice.

In my first house, I had a local mortgage company loan that was sold to a big bank (not GIANT but def big) , and I refinanced with them a couple years later. So I went with them for the new house, and that's who I am asking now. But what they offer doesn't sound so hot. I could possibly buy a point or so, but I would really like to get a shorter term AND a lower payment, and it seems like I might be able to get that, the rates have dropped a LOT. Some of those things on bankrate and etc might be come-ons, but it is so tempting, the 15 yr fixed is just barely over 3.0 and the 30 yr barely over 4.0.

Also while we are at it - what's the best way to check your credit without ending up on some list somewhere and getting annoying calls? I have no idea what our rating is. It should be good, but we may not have enough debt, it's pretty much just the house and the bills but no car payments etc for a while.

 

[tickbitty]

Also: we are not "underwater" but the tax assessment is considerably under what we paid. However, they have a few details wrong on the house that are skewing it. I figure the current loan holder assessed the house when we bought it for what we paid, so that would mean they think it's still worth around that? But maybe they don't. I think if we sold it now we might realistically get about halfway or 3/4 of the way between the tax assessment and what we paid. And we do have 20% equity either way.

 

[woodgeek]

the harp rates are lousy....the bankrates ones sounds reasonable--if you roll in closing costs (should be about 1% of house price), it will boost the rates 1/8th to 1/4 over the minimum, but that is no biggie.

If you have good credit and >20% equity, any firm will be happy to take your business. The firms will pull your credit, set up the appraiser, etc. You will be only on the hook for <$100 for the application fee and maybe a couple hundred for the appraisal. FYI, these brokers get paid a few percent of the house price by the banks to source your business (who get paid several percent per year by you in interest).

 

[smokinj]

Somewhere around 250.00 bucks for an appraisal. See where you stand with all banks.

 

[Jack768]

We refinanced last year. Rates and terms from "local banks and credit unions" were terrible. However, when we applied with major banks and mortgage companies -- ended up going with BofA -- rates got lower and terms improved. Just my experience. Dealing with the local guys, as often, meant inferior product and high prices.

Also, banks normally do not care if you refinance -- they don't lose money -- Fannie, Freddie, or the private mortgage securitization investors do. If anything the bank earns fees from your refi and therefore wants to do it, if the resulting mortgage can be resold to the government.

Great time to refinance. 30 yr fixed at 4% is hard to resist, 5/1 ARM is even lower.

 

[daveswoodhauler]

Big issue with refinancing now is the problem of lower home values. So, if you bought 6 years ago at $315K and now your house is at $210K you will need at least 80% equity to avoid PMI. This seems to be the biggest hurdle for those folks that bought 5-7 years back, and their home values have decreased by 30-40% - good luck

 

[jharkin]

Interesting... I hadn't really been paying attention lately to the rates. We bought in 09 with the first time credit, 10% down and have a 4.75.

Since then I've probably put another 10% of the value back into the house between contracted work and what I figure my DIY work would have cost if done professionally. However except for new exterior doors, some landscaping and a lot of painting, most of the work is behind the scenes stuff that I'm not sure will effect the appraisal so much (electric service upgrade & improvements, insulation, plumbing, structural work). According to the tracker sites the house has lost value so I imagine all my work might just keep the value even. I didn't think I would be able to refinance.

If we could get close to 4% with minimal fees and the equity was not a dealbreaker it would be worth it. I just checked and the bank we have the original mortgage with (Sovereign) is offering 4.125 no points. Might be worth making some calls......

 

[stee6043]

Big issue with refinancing now is the problem of lower home values. So, if you bought 6 years ago at $315K and now your house is at $210K you will need at least 80% equity to avoid PMI. This seems to be the biggest hurdle for those folks that bought 5-7 years back, and their home values have decreased by 30-40% - good luck

Exactly.

And PMI on that $210k house is $175 a month. Imagine the guy that had 20% equity when he bought his house being faced with a PMI payment when he refinances 5 years later. It really eats into your monthly savings numbers...

 

[joefrompa]

I'm gonna respond to a few things indepently since these items deserve their own post:

1. Do not pay an appraiser for an appraisal and then expect the bank to be able to use that appraisal. They will need to conduct their own, and you will need to pay for both.

 

[joefrompa]

Should you find yourself short of the 20% home equity required to avoid PMI/second mortgage, look into lender paid mortgage insurance (LPMI). For a short-term living situation, you pay a higher interest rate in exchange for no PMI.

My story with this: I had 5% equity in my house but outstanding credit - I refi'd my home 6 months after buying it last year. I went from a fixed rate of 4.75% + PMI of $250 a month to a fixed rate of 4.625% w/ lender paying PMI. My payoff for that re-fi was 10 months, with all fees rolled into the new loan (nothing out of pocket).

 

[joefrompa]

Tick,

To answer your question, first determine with certainty what you want to do.

A new 30-year note will lower your overall payments and lower your monthly payment, freeing up some cash flow.

Switching to a 15-year note will lower your overall payments on the house ALOT more, but may increase your current monthly payment reducing cash flow. But, again, in 15 years it'll be paid off.

I would strongly question using points to lower the interest rate. It is very common to do a no-point, low cost refi with the closing costs rolled into the new loan.

You need to weigh the payoff period of a point. Here's an example:

If you need to pay $2500 in points to reduce your interest rate by .25%, it may take 5 years of reduced payments to pay off that upfront investment.

You can't predict what will happen in 5 years and maybe it's better to keep that money in the bank right now.

Assess it for yourself, my cutoff point is that if I don't get repayment of the investment within 3 years than I'd rather have a slightly higher interest rate.

 

[gpcollen1]

I am currently waiting for the new federal program so I can refi without worrying about the value of my house. This program will happen and benefit many of us that owe more than the house is currently 'worth'. While I currently have a low interest rate, in the 5s, getting something around 4 is very attractive as well as being able to bundle my Home Equity loan in with it. Will see what the costs are for the 30, 20 and 15 yr notes.

BOTTOM LINE - do you want lower monthly payments or do you want to pay the home off faster?

 

[RSNovi]

I am currently waiting for the new federal program so I can refi without worrying about the value of my house. This program will happen and benefit many of us that owe more than the house is currently 'worth'. While I currently have a low interest rate, in the 5s, getting something around 4 is very attractive as well as being able to bundle my Home Equity loan in with it. Will see what the costs are for the 30, 20 and 15 yr notes.

BOTTOM LINE - do you want lower monthly payments or do you want to pay the home off faster?

I am also waiting for this program as well. Do you think they will be offering rates in the 4's? I looked into doing a 125% refi and the rates they offered were high 5's for this program when a 30yr fixed with 20% down were in the 4's.

After putting over $100k worth of improvements to the house after it was built 6 years ago, it still wasn't worth enough for a 125% loan. It killed me. A $40k pole barn was only valued at $7k. A finished 500 sq ft basement with a Jotul Oslo and a wet bar was only worth $2k. There is no logic behind any of this stuff.

 

[btuser]

Refinanced in 2009. At the time I thought I had threaded the needle and got the best rate in 40 years. Had no idea they could go lower. Thought about refinancing to save 1/2 point but I'm waiting for the Japan option: 1.9% for 40 years.

 

[firefighterjake]

Bought our house in 1996 right before marrying my wife (I know, I know . . . I did it in the wrong order) . . . got a great rate with a first time home owner rate . . . mortgage ended up being sold a couple times until my local bank bought it up . . . shortly thereafter the rates dropped even more and I refinanced . . . ended up paying a small fee (I think it was less than $300) and ended up cutting my 30-year mortgage to 15 years with only a $30 or so increase in the monthly payments. In 3 years, 3 months the house should be all ours.