Any mortgage brokers here? Or those who are in the know...

erikiksaz

Diamond Member
Nov 3, 1999
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0
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I'm new to this whole mortgage thing, more specifically, doing a cash-out refinance. I'm refinancing on a paid-off house to pay off school loans. Good credit, the loan I want is less than 60% of the value of the home, and it's for 30 years.

I think I have a fairly good understanding of all the basic terms, but here are some questions I haven't found answers to:

1) If you are pre-approved for a loan, and you are asked to lock down the rate, does that mean you are tied exclusively to that broker? Is there anything that would keep you from switching brokers after it's locked? Or is it just seen as poor form?

2) I was looking at going with lower interest rates with some fees up front (mainly 0.5 points +2000, or some combination that yielded something in that range) due to the interest savings over the 30 year term. People keep telling me that it's not worth it to pay fees up front since I'll refinance in a few years anyways. BUT, looking at historical mortage rate data, it seems like the lowest it's ever been was in late 2012, and it was always on a downward trend.

So it seems like it made sense in the past to forgo fees and pick the higher interest rate. But nowadays it seems like the trend is reversing and the rates are going back upward. Wouldn't keeping a lower rate now make sense? Or am I just too knew to this and still don't understand the big picture?

Anything else I might need to know?

THANKS
 

OCGuy

Lifer
Jul 12, 2000
27,224
36
91
1. If you lock down a rate, yes you are tied to that broker (Clarification: you are tied to that broker for that rate lock. You can switch brokers all you want, but I can promise if you have a rate that was locked prior to today, it would be hard for someone else to beat)

2. Rates took a crap again today, and will trend upward for at least a decade. You will most likely not be refinancing into a lower rate.

3. If you will keep the home and loan long enough to recoup the cost of buying down the rate, it is absolutely worth it to pay up front (If it costs $2000 to save $20 per month, yada yada)

4. Make sure it is actually worth it to pay for 30 years, meaning it is worth all the extra interest because you need monthly the cash-flow now (which I am sure you have done)

5. What kind of loan amount are we talking about here? Some situations with lower loan amounts call for a HELOC.

6. I would be very surprised if there was only .5% in compensation built in to the loan, especially if it is a smaller loan amount.


Good luck!
 
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CPA

Elite Member
Nov 19, 2001
30,322
4
0
Why would you want to extend your school loans out over 30 years? Just get the lowest 15 or 30 year loan on the house, then focus on killing off the school loans as soon as you can.
 

Vdubchaos

Lifer
Nov 11, 2009
10,408
10
0
So you are going to put your house on the line for a loan to pay off your school?

Not smart

What is your current APR on School loan and months left?

What APR are you looking at for refinance?
 

jaedaliu

Platinum Member
Feb 25, 2005
2,670
1
81
An alternative to a 2nd mortgage is a Home Equity Line of Credit (HELOC) The usage is a little different, as the HELOC is a pool of money available to you that you can withdraw any time. In your situation, the up front lump of cash you need makes a mortgage make more sense, but if you value flexibility to take out more easily at a locked in interest rate after you've paid some off, a HELOC may be right for you.

2. Rates took a crap again today, and will trend upward for at least a decade. You will most likely not be refinancing into a lower rate.

Nobody knows this. You should get a mortgage while the rate is good for you. If it goes down in the future, do the calculations to see if it's worth it. Pay your points and get a good APR. You'll know if it's worth it to refinance in the future when you compare APR.

I'm guessing you took out graduate loans? your rates are 6.8% or higher?

My view on things: I'm very risk adverse. If I was in your situation, I'd get a 10 year so that the standard repayment period is the same, and I'd be able to save money by paying less monthly, or paying it off more quickly.
 
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TerryMathews

Lifer
Oct 9, 1999
11,464
2
0
I'm new to this whole mortgage thing, more specifically, doing a cash-out refinance. I'm refinancing on a paid-off house to pay off school loans. Good credit, the loan I want is less than 60% of the value of the home, and it's for 30 years.

I think I have a fairly good understanding of all the basic terms, but here are some questions I haven't found answers to:

1) If you are pre-approved for a loan, and you are asked to lock down the rate, does that mean you are tied exclusively to that broker? Is there anything that would keep you from switching brokers after it's locked? Or is it just seen as poor form?

2) I was looking at going with lower interest rates with some fees up front (mainly 0.5 points +2000, or some combination that yielded something in that range) due to the interest savings over the 30 year term. People keep telling me that it's not worth it to pay fees up front since I'll refinance in a few years anyways. BUT, looking at historical mortage rate data, it seems like the lowest it's ever been was in late 2012, and it was always on a downward trend.

So it seems like it made sense in the past to forgo fees and pick the higher interest rate. But nowadays it seems like the trend is reversing and the rates are going back upward. Wouldn't keeping a lower rate now make sense? Or am I just too knew to this and still don't understand the big picture?

Anything else I might need to know?

THANKS

Are you really sure you want to do this? There are a number of tools available to you under the government umbrella if you were to suddenly lose your income stream that would keep you from being delinquent on your loans, that don't exist on the mortgage side.

IBR, hardship deferment, etc.
 

Sho'Nuff

Diamond Member
Jul 12, 2007
6,211
121
106
So you are going to put your house on the line for a loan to pay off your school?

Not smart

What is your current APR on School loan and months left?

What APR are you looking at for refinance?

We don't know the OP's income, debt to income ratio, APR on the loans in question or any of the numerous other factors relevant to whether the decision is "smart" or not.

Depending on those factors, this could absolutely be a good financial decision, particularly as education loan interest rates are skyrocketing.

While mortgages do not offer the same benefits as education loans in terms of governmental backing (for hardship etc.) if the risk factors in play are unlikely to occur in OP's life then it probably does make sense to forego those benefits to obtain an interest rate that is 50% of the interest rate of a ed loan.

It might surprise you, but the repayment period for many education loans is now 20+ years. Therefore what you perceive as a huge change in term may not be factually accurate.

In any case - the mere fact that OP would have a mortgage loan instead of an ED loan doesn't mean that he cannot take the same approach others have suggested and simply pay it down as quickly as possible.

OP, to answer your question -

1. If you lock with a particular loan broker, you can change brokers. BUT, the broker you locked with is probably going to be pissed because he may have laid out some cash to the lender in exchange for the lock.

2. As to whether it makes sense to pay fees up front - it all depends on the difference in rate and how long you are going to own the home. The ROI (return on investment) has to make sense.

I would concur that you seem to have a pretty good understanding of the situation. Just try not to get bamboozled. Use your resources, and remember that you can ask your broker to show you the ROI on any loans that have points (fees) attached.
 

erikiksaz

Diamond Member
Nov 3, 1999
5,486
0
76
Why would you want to extend your school loans out over 30 years? Just get the lowest 15 or 30 year loan on the house, then focus on killing off the school loans as soon as you can.

Shoot, I knew I should have put down more details.

The goal of the refinance cashout is to directly escrow the loan into paying off the school loan, with keeping a small extra amount on the side for purchasing a practice in the future. I was told that directly escrowing the borrowed loan into paying off my school loan only looks like I'm taking out one big loan instead of two (from the lender's POV).
 

erikiksaz

Diamond Member
Nov 3, 1999
5,486
0
76
Hey I finally learned about the multi-quote feature!

An alternative to a 2nd mortgage is a Home Equity Line of Credit (HELOC) The usage is a little different, as the HELOC is a pool of money available to you that you can withdraw any time. In your situation, the up front lump of cash you need makes a mortgage make more sense, but if you value flexibility to take out more easily at a locked in interest rate after you've paid some off, a HELOC may be right for you.

That's true, about 80% of the refinance cashout I'm looking at is for repaying the school loans. But I will read into a HELOC just to make sure.

I'm guessing you took out graduate loans? your rates are 6.8% or higher?

Yes, 6.8% for my loans. If I did the extended repay plan, I'd be paying back 200k in interest on a 190k loan amount. If I had a refinance of just ~190k with say 4.5% (with 1 point [~2,500], although this was a quote from last week), it'd be about 154k, about 40k less than sticking with the extended repay of my school lender.

My view on things: I'm very risk adverse. If I was in your situation, I'd get a 10 year so that the standard repayment period is the same, and I'd be able to save money by paying less monthly, or paying it off more quickly.

I'm confused by this. 10 year loan = MASSIVE payments for me. I think I'm misunderstanding something here, hah.

Are you really sure you want to do this? There are a number of tools available to you under the government umbrella if you were to suddenly lose your income stream that would keep you from being delinquent on your loans, that don't exist on the mortgage side.

IBR, hardship deferment, etc.

That's a good point. With the numbers I quoted above, it's roughly a 36k gamble. I work as an eye doctor, and the other doctors at this practice have been here for years, so I'll cross my fingers that I won't be getting canned anytime soon, hah. Truthfully I don't know.

Things are so much more confusing after speaking to another mortgage broker (let's call her broker #2). Broker #2 said that since I graduated into a medical profession, that most lenders would have been willing to loan me the amount right out of school given that the loan is directly used to pay for the loan. This would have been nice because I graduated in May 2012 and interest rates looked awesome at 2012's end.

The problem is that my original broker, broker #1 said that even with the direct escrow from mortgage loan to school loan, the lenders needed to see at least 6 months of work history, nevermind the medical profession thing. I'd like to think that broker #1 didn't screw me over in terms of losing out on sub-4% mortgage rates, but I've never dealt with this or had any other friends in the same boat.


We don't know the OP's income, debt to income ratio, APR on the loans in question or any of the numerous other factors relevant to whether the decision is "smart" or not.

Depending on those factors, this could absolutely be a good financial decision, particularly as education loan interest rates are skyrocketing.

While mortgages do not offer the same benefits as education loans in terms of governmental backing (for hardship etc.) if the risk factors in play are unlikely to occur in OP's life then it probably does make sense to forego those benefits to obtain an interest rate that is 50% of the interest rate of a ed loan.

It might surprise you, but the repayment period for many education loans is now 20+ years. Therefore what you perceive as a huge change in term may not be factually accurate.

In any case - the mere fact that OP would have a mortgage loan instead of an ED loan doesn't mean that he cannot take the same approach others have suggested and simply pay it down as quickly as possible.

OP, to answer your question -

1. If you lock with a particular loan broker, you can change brokers. BUT, the broker you locked with is probably going to be pissed because he may have laid out some cash to the lender in exchange for the lock.

2. As to whether it makes sense to pay fees up front - it all depends on the difference in rate and how long you are going to own the home. The ROI (return on investment) has to make sense.

I would concur that you seem to have a pretty good understanding of the situation. Just try not to get bamboozled. Use your resources, and remember that you can ask your broker to show you the ROI on any loans that have points (fees) attached.

I'd half to add the last half of 2012 to the first half of 2013, but I'm estimating income to be around 110k. No debt except for the school loans of roughly 190k.

Mortgage rate (this part I'm confused, you guys keep mentioning APR, I keep using mortgage rate, I gotta google the difference) looked like this last week:

4.625 across all brokers I spoke to, 0 fees, 0 points

~4.375 either 0 points + 2500 fees, or 0 fees and 1 point (still 2500, but tax deductible)

~4.25 with 1 point and 2500

I know that damn near none of these are applicable anymore since I didn't lock down, but t seems like the more I research about this stuff the more complicated it becomes!
 

OCGuy

Lifer
Jul 12, 2000
27,224
36
91
You are not getting those deals today.

Ignore people regarding your DTI, etc, that is not factored in to your pricing. Either you get AUS approval or you don't.

Anyone can set it up so escrow pays the loans off directly, (or mails you a check that is already made out to whoever is servicing your Sallie Mae student loans). That is not a perk that one broker can do and one cannot.

Generally you need a 2 year work history in the same field. However, some banks with few overlays will allow a one year history with compensating factors.

Being a full time student does count as work history, as long as you prove you were a student in the field that you ended up going into. I require transcripts to show this.

Barring a major unforeseen event, rates are going up. There may be days where they pull back slightly, but everyone in this industry would tell you to look as soon as you can. The government is tapering the massive purchase of bonds, so the days of artificially low rates are gone.
 

Midwayman

Diamond Member
Jan 28, 2000
5,723
325
126
Barring a major unforeseen event, rates are going up. There may be days where they pull back slightly, but everyone in this industry would tell you to look as soon as you can. The government is tapering the massive purchase of bonds, so the days of artificially low rates are gone.

I think early this spring was about as low as we will see for decades.
 

jaedaliu

Platinum Member
Feb 25, 2005
2,670
1
81
10 year loan repayment on med school is about $3500/month for student loans. Very difficult if you're still a resident, but once you're done with residency, that should be no problem. Up to you to decide what the value of early payoff+lower interest paid is vs availability of cash and comfort.

Rate vs APR:
Your rate is the quoted rate by the lender. If you're comparing rates with the same number of points, that's apples to apples. However, if it's across 2 different points, it's apples to oranges. APR takes into account the money you laid out(points) and the rate, and then combines them into a number that's easier to compare.

Are you finished with residency? Are you looking to take over someone's practice? or are you looking to buy into a group? What is your specialty? My cousin bought into his cardiology group by making payments to the group over time. His setup was free EKG readings until the billables for EKGs matched his buy in amount. (he probably did a lump sum initial payment, but I never asked him for all the details)
 

OCGuy

Lifer
Jul 12, 2000
27,224
36
91
I think early this spring was about as low as we will see for decades.

Yep...I actually helped a ATOTer get into a 3.375% on a 30 yr around that time, which is about as good as the Best Execution Rate will ever get. That particular person timed it absolutely perfectly.

The investors holding the loans with low rates like that are starting to become uncomfortable, but that is their problem.
 

erikiksaz

Diamond Member
Nov 3, 1999
5,486
0
76
10 year loan repayment on med school is about $3500/month for student loans. Very difficult if you're still a resident, but once you're done with residency, that should be no problem. Up to you to decide what the value of early payoff+lower interest paid is vs availability of cash and comfort.

Rate vs APR:
Your rate is the quoted rate by the lender. If you're comparing rates with the same number of points, that's apples to apples. However, if it's across 2 different points, it's apples to oranges. APR takes into account the money you laid out(points) and the rate, and then combines them into a number that's easier to compare.

Are you finished with residency? Are you looking to take over someone's practice? or are you looking to buy into a group? What is your specialty? My cousin bought into his cardiology group by making payments to the group over time. His setup was free EKG readings until the billables for EKGs matched his buy in amount. (he probably did a lump sum initial payment, but I never asked him for all the details)

Thanks for the rate VS APR. No residency required for optometry. I am definitely not in the same pay grade as a lot of the other medical professions.

Yep...I actually helped a ATOTer get into a 3.375% on a 30 yr around that time, which is about as good as the Best Execution Rate will ever get. That particular person timed it absolutely perfectly.

The investors holding the loans with low rates like that are starting to become uncomfortable, but that is their problem.

So just curious, if you have 2 people that are friends and want to refinance at the same time, are you able to offer better rates for the double refinance?

And back to requiring a certain amount of work history. Is it the majority of lenders that require at least 2 years of work experience (= time in grad school)? Do you think I would have had a pretty good chance at getting this loan in 2012 with only a few months worth of real on-the-job experience (relevant to my field)?

Thanks all for the input
 
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