Refinancing

Spencer · Mar 11, 2003

Have any of you refinanced lately? I have a 15 year fixed rate mortgage at an even 7%. We bought this house around June of 2001. We got the original load through a local company but they sold our mortgage before the first payment was even due. That original loan officer said last week that he could easily get me a refinance rate of no higher than 5.35% for no more than $1200 or $1300 in closing costs. I asked him if he could be more specific on the closing costs and he said that he would have to run it through the system. So he said he would do that and get back to me by yesterday. He did call back and leave a message yesterday saying that it would be no problem to get the loan (even though my income dropped significantly in 2002) and that they could do a drive-by appraisal instead of a normal appraisal. The drive-by appraisal will cost significantly less money.

Just to check, I called my current mortgage company (the one that bought our mortgage). They said that refinancing with them would be the best and easiest route (as if they would say anything else). They offered me 5% fixed rate (also 15 year) for less than $1000 in closing costs. She said that I would not need to be re-approved for the loan because I was already a mortgage customer and that there would be no appraisal at all. I asked her to be more specific about the closing costs so she tried to break it down for me.

Credit report- $6 to $30 (she would try to make it $6)
Title company fee- $275
Title insurance- $492
Settlement closing fee- $125
Courier- $16 (overnighting paperwork back and forth)
Recording fee-$100
Tax service fee- $10

This adds up to a worse case of $1048 in closing fees. The only fees that I questioned were the settlement closing fee (not sure what that is), the recording fee seems a little high, and the tax service fee (she didn't know what that was for). When I questioned some of these fees she said that these were the highest they would be and if the actual costs were less than that savings would be passed on to me. If I went this route my new payment would be $174 less per month so I would have recouped my closing costs in less than 6 months.

What do you all think? I have been self-employed for over 13 years so I don't feel like running all over to a bunch of different lenders to try and get a better deal. If you don't know already, lenders often look at self-employed quite differently than regularly employed people. I am pretty sure that I could get that local company to give me the same rates for around the same costs. It would involve a lot more paperwork on my part, take longer, and they would probably just sell my mortgage again so I don't see the point.

Are there any things in particular I should look out for in the refinance paperwork? I will have my lawyer look them over of course but if you know of some common tricks that might be tried then please pass them along.

utahmule · Mar 11, 2003

My wife did real estate for quite awhile, and we've refinanced our stuff a couple of times. Those prices look pretty reasonable to me, especially for a self-employed guy. The rate could be a little lower, but not much.

I can't see any reason to try the local place if they're just going to sell the loan. Unless you're planning to sell in the immediate future, I'd do it, while the rates are still down. Yes, they will go back up sometime in the near future I think.

herbenus · Mar 11, 2003

We just refinanced. It's hard for them to nail down closing costs because they depend on taxes owed for year, taxes paid, escrow amount, insurance, etc, etc. It's a moving target. We were told that we'd have almost $3000 in closing costs. When we actually closed it was around $900. Then we had almost 1-1/2 months before first payment came due. And we got a small amount back later from the old escrow account. Cashflow we probably came out ahead but still you need to have that money in the bank for that closing. I'm sure not everyone comes out ahead, just my experience.

Spencer · Mar 11, 2003

Luckily we have no escrow on this mortgage. On my last house the mortgage company screwed up insurance payments too often. The insurance company would contact me but there was little I could do except call the mortgage company and see what went wrong. This time I made sure that I would be in control of paying the taxes and insurance. I pay them seperately from the mortgage payment. It kind of sucks getting those large bills instead of breaking them up into little chunks every month but that is how I like to do it.

On another note I think things would be a lot different in this country if we all were more involved in paying taxes. I think that instead of employer's withholding payroll taxes from employees checks, the employees should get their full check and be responsible for paying the taxes themselves. If everybody had to actually write checks out every month out of their own bank accounts things would start to change in our government.

rancar · Mar 11, 2003

Anyone know what the guiding rule is that prompts a refinancing? I've heard that for it to be worthwhile current rate should be at least 100 basis points below the financing rate one is currently paying with several years left on the mortgage.

I'm paying 6.25% on a 15-year fixed. Mortgage was taken out January, 1999. I can get a refinancing through my lendor for a rate of 5.375%. I've been monitoring interest rate activity. Fed may likely cut rates again later this month by 25 basis points. This may squeeze mortgage rates even lower. I thought of just waiting myself until the 15-year fixed gets down to about 5% before refinancing. I can't see the 15-year going much below this as Fed rate cuts are likely coming to an end during this cycle.

Any thoughts?

....Bob

hazmat · Mar 11, 2003

I've heard that for it to be worthwhile current rate should be at least 100 basis points below the financing rate one is currently paying with several years left on the mortgage.


Its a simple cost benefit analysis. Calculate your monthly savings for the cheaper loan vs, the cost to refinance & get your payback time (in months). If you want to get fancy, plenty of web sites also calculate the tax implications and what the closing costs would be worth if invested (you put in the "savings" rate). It's been my experience that the payback time is within a couple months. The web sites will tell you how much you'll save for a given number of years (ie sell the house in 7, 10 , 20 years etc.)

We refinanced in November on a 30 year fixed from 6.5% to 5.75. We had to pay a point & a quarter to get the lower rate. Closing costs (including the points) were about $7K. Our payback time is a little over 4 years. For some this long payback is not worth it (selling the house, don't have the money available in their savings account etc.) For us, we will be realizing the $150 a month savings right about the time we will be starting a family. /forums/images/graemlins/smile.gif

Of course today we could have gotten 5.75% with 0 points /forums/images/graemlins/mad.gif You just never know!

Anonymous Poster · Mar 11, 2003

Spencer,

I would suggest you remember one thing...

If the rates would continue to fall you could refinance again at some time in the future...and save more.

If the rates start to go up, you will have less opportunity to save and as they approach your current 7% the window of opportunity to save closes...

A drop from 7 to 5 percent is more than a 25% reduction.

I would do it now.

chrisjbell · Mar 12, 2003

The rates right now are just great. We recently locked 5.5% on a 30-year fixed, no points. Closing costs are in line with the ones listed above. We combined our 1st (at 6.25%) and our 2nd into one conforming loan, which definately makes it worth it, since we plan on staying here (hopefully forever).

I considered a 15-year, but decided not to...it would have saved as much as 1/2%, and shortening the term is certainly a Good Idea. However, my income has also dropped considerably over the past year and the economy is refusing to perk up. Given that the lower payments may become key to hanging on to the place...and you can always pay extra on a mortgage to decrease the interest spent.

But I'm afraid that I'm more likely to go buy another tractor than make extra mortgage payments /forums/images/graemlins/blush.gif...Chris

8NTX · Mar 12, 2003

We refinanced 1 month ago and got a 15 yr. mortgage at 5%. Total closing cost was about 1% on a $130,000 mortgage. That amount was wrapped into the note so no cash needed at closing.

19th_VA · Mar 12, 2003

Now's the time to refinance (no I'm not a loan officer). Saving 2% is ideal. Even if the fed cuts the rate more (there's not much more to cut), it does not always translate into lower long term mortage rates. If you're going to keep the mortgage for a long time, and have the cash, pay a point or two and you ought to be able to go below 5%. The points are deductible and the savings sometimes (not always) justifies the cost. Refinancing can even be done entirely over the internet (save for closing) and signing a few papers. It couldn't be easier.

riptides · Mar 12, 2003

Spencer

I would shop around. Try bankrate.com or some other internet sites for rate searches. I just refinanced a while back, that is how the B7800 showed up!

Anyway, I thought long and hard about it, but one thing stuck to me on all the advise given.

"What is your risk of losing out, if the rates go UP?" Yes they MAY drop yet again, but what are you losing in the meantime?
Just HOW much will you save by a 1/2 percent?

Take the CASH and run.....

Wrong person replied to, sorry.
-Mike Z. /forums/images/graemlins/cool.gif

BigDave · Mar 12, 2003

Spencer,

I think you should refi with the current company if the costs are significantly lower. They vary greatly between states and even localities, so I have no idea if a grand for closing costs is a good deal or not. You can find some lenders online to determine loan closing costs & call a local title company to get an estimate of fees. Add them up, and that's what refi with a new lender will cost. You might get stuck with an escrow account, and if so, that may mean a lot of money out of pocket although it's money you will have to spend eventually anyway. Anyway 6 months to recoup closing costs sounds like a no-brainer - I would go for it. /forums/images/graemlins/wink.gif

We are currently in the refi process, 15yr jumbo at 5% w/ 3/8 pt buy down. My current mortgage company counter offered with 5.25% & 0 points and 0 cost. It's a good deal, but due to the complexity of a 1st & 2nd mortgage & the jumbo status, it still will be cheaper to do a complete refi. Our closing costs will be about $3300. The amazing part is that we will save $8000 in interest the first year...of course the downfall is that our tax bill will go up $3000. /forums/images/graemlins/crazy.gif

Good luck. /forums/images/graemlins/smile.gif

19th_VA · Mar 13, 2003

That leaves you $5,000 in the black!

Mosey · Mar 13, 2003

You don't have to find the best deal, just find one that will make an improvement. I didn't do much work or spend much time and I got some cash and reduced my payments by a few hundred dollars. It was basically free money for no work. I refinanced last fall with 5th 3rd bank. They do not resell the their loans. The original loan with another company was sold within months to Bank of America. Shortly after that I had to hassle with them about whether or not my house was in the flood zone. They said it was determined to be in and it was up to me to prove it isn't. I had to deal with them over the phone and by mail and faxes. Now if I need to deal with my mortgage company, I just drive over and talk to them at 5th 3rd bank.

Spencer · Mar 13, 2003

( ...of course the downfall is that our tax bill will go up $3000. /forums/images/graemlins/crazy.gif )

Why would your tax bill go up if there was no change in ownership?

19th_VA · Mar 13, 2003

Sorry to answer for you, Big Dave. Spencer--because he's deducting $8,000 a year less in interest off his taxes. in a 35% tax bracket, that's about $3000 more in taxes.

WVBill · Mar 13, 2003

Lower interest payment = lower itemized deduction for interest = higher adjusted gross income = higher tax payment.

Spencer · Mar 13, 2003

( Sorry to answer for you, Big Dave. Spencer--because he's deducting $8,000 a year less in interest off his taxes. in a 35% tax bracket, that's about $3000 more in taxes. )

Thanks for clearing that up, I just assumed he was talking about property taxes.

BigDave · Mar 14, 2003

No need to apolgize, I couldn't of said it better myself. $5000 in black is why I'm refinancing. /forums/images/graemlins/grin.gif

The only downside is that the $3000 is out of pocket, while the $8000 is equity that is unrealized until I sell my home. I'm just thinking of it as a long-term savings program where I put away $250 in cash and I'm getting $667 in home equity. Not a bad deal. /forums/images/graemlins/wink.gif Of course, I'll build up equity much more quickly and will be able to borrow against it if a need arises.

Spencer · Mar 30, 2003

We signed the papers this last Friday. The agent at the title company said that she had not seen such a good refinance deal before. It cost us $988 but only $26 of that went to the mortgage company ($10 for tax service fee and $16 for courier service). We will make up the $988 in less than six months and we will save over $30,000 in the long run. The whole process couldn't have been easier. I will be saving $174 each month which almost covers my $200 tractor payment. /forums/images/graemlins/grin.gif