Hey y'all, so it looks like I might be able to refinance our mortgage and get a lower interest rate and a reduced monthly payment. I know some of you (??) have recently refinanced your mortgages, can you talk to me about this because I am afraid I might be missing something.

I got a notice in my mortgage account about refinancing, so I contacted my current mortgage loan servicer (i.e. not the original lending bank).

Here's what I was told would be my expenses to re-fi:

1. application fee $100
2. Possible appraisal fee of $445. This is a "possible" fee because we may or may not need an appraisal (the house was just appraised last year, maybe it was in Feb?). I think he said he would have to start the application before we would know for certain about the appraisal fee
3. What would normally be paid as closing costs would get folded into the loan, so I wouldn't pay any closing costs.

That's it, no other fees.

Here's how I would benefit:
1. interest rate would be reduced by slightly more than 1.6%
2. Monthly payment would be reduced by somewhere between $200 to $250.

So. Even if I had to pay for the appraisal, that expense would pay for itself in about 3 months.

This seems a little "too good to be true" -- although, I know roughly what those closing costs are, and so it's not like the bank doesn't benefit here.

Am I missing anything? Anything else I should be asking about?

Thanks in advance for any advice, I would hate to make a misstep!

Are both mortgages for the same term?

Pro tip: If you can, keep paying what you're paying now and have the bank apply the excess to paying down the principal. You'll pay off the mortgage way earlier.

edit: If for some reason you're pressed for the extra amount some months, you can just skip it. But if you're comfortable with what you're paying now, just keep on going.

Here's an additional question: do I need a lawyer to refi?

When we bought the house, we used a lawyer (I think that's standard practice in this state). But of course, then the deed/title was changing hands and so on, so it's a much more complex transaction.

So, no lawyer for a re-fi??

quote:

Originally posted by wtg:
Are both mortgages for the same term?

The agent I spoke to said I could choose to "restart" to a 30 year loan, or keep it where it is, which is a 28.5 year loan... So that's not a huge difference...

quote:

Pro tip: If you can, keep paying what you're paying now and have the bank apply the excess to paying down the principal. You'll pay off the mortgage way earlier.

Re this, yes, I've thought of that, if I get a reduction of $200/month and even pay half of that to the principle it seems like it would be worth doing the refi (I would put the remaining other into savings, which is one reason I really want to do the refi)

No lawyer.

Banks buy and sell mortgages all the time and the files get lost pretty routinely. Be sure to get all the paperwork for the cancelled mortgage, and keep it in your files once everything is processed.

That came up for us when we sold Casa Norte earlier this year. One of the mortgages we had along the way wasn't showing up as being satisfied, and we saved ourselves and the title company time and money because we had all the documentation.

quote:

Originally posted by ShiroKuro:

The agent I spoke to said I could choose to "restart" to a 30 year loan, or keep it where it is, which is a 28.5 year loan... So that's not a huge difference...

It's a year and a half of payments. If you look at what your principal is right now, you've probably barely made a dent in it.

Don't restart it.

No, you don't need a lawyer unless you WANT to have him/her look over the closing costs to see if there is anything you missed.

You should not need a reappraisal if the last one was done within something like 18 months.

There should be a variety of costs bundled under things like "origination charges," "title insurance," and other fees paid to the title company.

I restarted mine at 30 years. It doesn't make much of a difference. Your monthly payment is lower, and you can always pay down principle whenever you feel like it with the cash you're saving. I'm not going to be around in 30 years, in all likelihood. I'm not really worrying about carrying the debt because the interest rates are so low and we have positive net worth excluding the equity in the house.

Ok, this is very helpful, thank you both!

So, I guess I need to get the details of what those closing costs are that get folded into the loan and think about the impact of that on the principle and whether that makes sense...

Also, I think he may have appraised our house too highly?? He gave me a higher number than the estimate on Zillow, FWIW...

Is there a number for the interest rate that I should have in mind for whether it's "worth" it to re-fi or not? His estimate was a reduction of 1.6%, but say it's only 1% ... it's still worth it right? But maybe not worth it if it's only a reduction of 0.5%?

Am I thinking about this the right way?

Pretty much.

In theory, you should look at what you'll save in payments, how much you think you can earn on whatever extra you might save, how long you plan to be in the house....

I'm not that disciplined. And I like being debt-free. Which is why I gave the advice I did.

P*D the economist and jon the finance guy are probably the people you should listen to.

The bigger the reduction in interest rates the shorter the payback period. General rule of thumb is if you can cut 1% off the interest rate, and you plan to stay in the home for a few years, go for it.

If you save $200 a month and you have $2,000 in closing costs you've got a whale of a deal. Your payback period is less than a year.

Yes, you can fold most of the closing costs into the loan if you wish so that you don't have to pay any significant amount of cash. That just increases your debt a bit, and raises your monthly payment a tiny bit. But with interest rates this low, that's not necessarily a bad thing to do. Put your money in TIAA-CREF where its long term prospects are much better than the 3% or so you'll be paying on your mortgage.

quote:

Originally posted by ShiroKuro:
Also, I think he may have appraised our house too highly?? He gave me a higher number than the estimate on Zillow, FWIW...

Is there a number for the interest rate that I should have in mind for whether it's "worth" it to re-fi or not? His estimate was a reduction of 1.6%, but say it's only 1% ... it's still worth it right? But maybe not worth it if it's only a reduction of 0.5%?

Am I thinking about this the right way?

My old rule of thumb was about 2% difference..you are close. And using the savings to pay down the principle is a good idea. The interest is generally calculated on your principle so you save on future interest charges as well, especially now at the beginning of your mortgage where the higher percentage of your payments go towards interest...There are calculators on line that can help you see what difference it will make.

Also ask about biweekly payments, every other week..Instead of making a once a month mortgage payment, it is split in two. We did this and asked the bank to take the payment on specific weeks that lined up with paydays. As the calendar goes, you end up making one extra payment a year..this can bring down your term significantly.

I did this and made extra principle payments, very small, $50-100/month and lopped off several years from our former home mortgage.

And ask about automatic withdrawal...My bank offered a .5% rate discount for this.

I now live mortgage free and cannot tell you how happy that makes me feel. I live now in my house spending less than what I would pay in rent for a one bedroom apartment.

And a higher appraisal is a GOOD thing! It shows your home as gone up in value and that your debt relative to value is lower, a lower risk for the mortgage lender.

We did a mortgage "modification "instead of a refinance. Twice, actually. Once to go from 7% to 5%, and again to 3.5%.

We paid a flat fee, and the lender reduced the interest rate. The payments go down, but nothing else changes. You cannot change the term or take money out.

It was a win for us because no closing costs, and it was fast and easy. It's a win for the lender because they get paid for doing a couple of keystrokes, and they keep our business.

We just did a "modification" as well. From what I can tell, this is something your mortgage company may choose to offer when interest rates go down, because they'd like to keep your business (e.g., they don't want you to go buy another mortgage from somewhere else).

Like Cindy, it was a flat rate, I think ours is in the 3.5% range now, or perhaps even lower. At any rate, it was a bit of a no-brainer. Payback is 14 months. Maybe check to see if your current mortgage company offers something like that?

It's just a paperwork shuffle. No reappraisal, no inspection, nada.