Refinancing home loan

[StormRider]

At what point would it be worthwhile to do this? I bought a condo last May at 7.25% interest. I also took out an equitity loan for about $16,000 to avoid PMI. I was iffy about the last part because it's a baloon payment. Basically, at the end of 10 years I would have to write a check for about $10,000.

With interest rates going even lower, I sometimes wonder if it would be worthwhile to refinance and consolidate my two loans.

Well, last night I got a call from a mortgage company I'd never heard of (Crossroads Mortgage -- or something like that) asking if I am interested in refinancing my home loans. I usually avoid answering telephone calls by checking Caller ID on my answering machine downstairs but this time I took a chance and answered my upstairs bedroom phone because I suspected it might have been my mom calling to check if I got home okay because of the bad weather.

Well, I answered a few questions and gave him my social security number (which I now regret because I don't know this company and who knows, maybe it's a scam?) so he can check my credit history. He's supposed to call back this weekend with a proposal or something more concrete. I did a search on the web and there is a Crossroads Mortgage company in Maryland listed in the Better Business Burea but I couldn't find any websites for that company. Anyways, he said there's no obligation for this free estimate but I think I prefer to deal with a bigger company or something. Maybe I should go to my credit union?

Is it worth it to refinance a recent home loan? How much trouble is it? I hated all the paper work for the first loan...

 

[StageLeft]

Well, I answered a few questions and gave him my social security number (which I now regret because I don't know this company and who knows, maybe it's a scam?) so he can check my credit history. He's supposed to call back this weekend with a proposal or something more concrete. I did a search on the web and there is a Crossroads Mortgage company in Maryland listed in the Better Business Burea but I couldn't find any websites for that company. Anyways, he said there's no obligation for this free estimate but I think I prefer to deal with a bigger company or something. Maybe I should go to my credit union?

Chances are nothing bad will happen but man that is a BAD idea giving your SSN and address and all that to somebody on the phone. For all you know he's already waiting for his new credit cards in the mail on your name.

I'd never respond to business from a phone solicitation for something important like this. Go to your credit union and check around locally with other banks as well. I haven't mortgaged recently (or ever), but from what I've read I think your rate is very high and you should be able to slash a lot of it so I'd think refinancing at this point is a sound decision.

 

[Queasy]

Yeah, I agree with Skoorb. Giving out all the information over the phone is generally a bad idea. That is one of the favorite tricks of scam artists.

That said, if you can get your rate reduced to 6% or less through a refinance, it may be worth it. Go check out Fool.com Refinance Calculator to see what rate it would be worth to get a refinance.

Then go check out BankRate.com and see who can give you the type of refinance loan you need.

 

[StormRider]

Originally posted by: Skoorb

Well, I answered a few questions and gave him my social security number (which I now regret because I don't know this company and who knows, maybe it's a scam?) so he can check my credit history. He's supposed to call back this weekend with a proposal or something more concrete. I did a search on the web and there is a Crossroads Mortgage company in Maryland listed in the Better Business Burea but I couldn't find any websites for that company. Anyways, he said there's no obligation for this free estimate but I think I prefer to deal with a bigger company or something. Maybe I should go to my credit union?

Chances are nothing bad will happen but man that is a BAD idea giving your SSN and address and all that to somebody on the phone. For all you know he's already waiting for his new credit cards in the mail on your name.

I'd never respond to business from a phone solicitation for something important like this. Go to your credit union and check around locally with other banks as well. I haven't mortgaged recently (or ever), but from what I've read I think your rate is very high and you should be able to slash a lot of it so I'd think refinancing at this point is a sound decision.

Yeah, I usually don't like to respond to any solicitation on the phone but he caught me off guard. I just hope he wasn't a scam artist. He did seem to already know a lot about my loans so hopefully he's on the up and up. I think I'll go check my credit union today too...

 

[StormRider]

Originally posted by: Queasy
Yeah, I agree with Skoorb. Giving out all the information over the phone is generally a bad idea. That is one of the favorite tricks of scam artists.

That said, if you can get your rate reduced to 6% or less through a refinance, it may be worth it. Go check out Fool.com Refinance Calculator to see what rate it would be worth to get a refinance.

Then go check out BankRate.com and see who can give you the type of refinance loan you need.

Thanks for the links. I'll go check it out.

 

[HomeBrewerDude]

The rule of thumb I have heard is that if you can get a rate 1% lower or more, then its a good idea to refi. However, I know virtually nothing about this. I suspect that you have to really shop around.

 

[Budmantom]

It's my understanding that it should be 2% or better and it's only worth it if you plan to stay longer then 5yrs. Don't forget about all the costs they add up, is it going to be rolled into the loan or is coming out of your pocket.

So to sum it up it's pretty easy figure out how long you plan to stay in your condo then do the math, just make sure you end up saving in the end.

 

[Queasy]

Oh, if you have a FHA loan, you should be able to do a streamline re-finance with no closing costs.

 

[Rio Rebel]

It's worth refinancing if you're going to get a lower rate, and if you're going to stay in the house long enough that the savings from the lower interest rate offset the cost of refinancing. That's whay many people say a drop of 1 percentage point is worth it. But that's an average, not a hard and fast rule.

In my case, our credit union charges less than the average institution for closing costs. That, and the amount of our loan (higher amount = more interest = more savings if the rates drop) make it attractive to refinance. We will pay off the cost of refinancing in about 10 months, so we'll have started saving money before the year is out.

It's a great time to buy or refinance a house...if we can just hang onto our jobs in this market. 😉

 

[dman]

Fleet has a 20yr home equity loan w/ no closing costs. $0. No hidden charges. No Fees. Nothing. ZERO. Zilch. Got it!

You can only borrow 80% of your homes appraised value, and it can only be used to refinance not as a '1st mortgage' on a new home. That's about the only restriction.

It's 5.99% Fixed APR in most states (that they offer it). That's including a .25% bonus for opening a checking account w/ them. To see if it's available you have to dial, 1800-callfleet, you can't get the info on their website (that sucks). NOTE: I'm just a customer, no affiliation.

Other folks will find better rates / longer terms, but, so far I haven't heard of anyone who went through closing and had zero closing costs in those 'other'offers. The closing costs are what make it hurt to refinance, and why you are told you need to stay 5yrs and go down 2%. With no closing costs / fees you have a lot more flexibility.

Because it's 20yr instead of 30yr though, your payment might go UP. So, do the math. We went from a 30yr 7.125% to the 5.99% 20yr and our payment went up about $80/mo but we'll be paid off 10yrs earlier and save a LOT more than the $80*12*20 in interest.

You can search here and f@twallet on Fleet, there's been a lot of talk on it, as well as some other options in those threads.

Good luck.

 

[Rio Rebel]

Budman, I believe your numbers are figuring whether to buy a house, not refinance. The higher numbers have to reflect the cost of brokerage fees when it's time to sell.

When it comes to refinancing, a lot depends on the fees (and points, if you are willing to pay them.) Since I never pay points, I usually only need about a 1 point drop to justify a refinance.

 

[Budmantom]

Originally posted by: Rio Rebel
Budman, I believe your numbers are figuring whether to buy a house, not refinance. The higher numbers have to reflect the cost of brokerage fees when it's time to sell.

When it comes to refinancing, a lot depends on the fees (and points, if you are willing to pay them.) Since I never pay points, I usually only need about a 1 point drop to justify a refinance.

Actually that's how it was explained to me by my mortgage company when I was talking to them about refinancing about two months ago.
I too don't pay points but the fees do add up especially if your working with under 100k it takes time to get your money back.

 

[Rio Rebel]

I too don't pay points but the fees do add up especially if your working with under 100k it takes time to get your money back.

I guess that makes some sense. Still, I can't believe you'd have to stay there 5 years with a 2% drop to get your money back. According to my calculations, if you borrowed $100,000 for 20 years, and the interest dropped from 7 percent to 5, you'd save a little over $110 a month. Even if your refinancing fees were as much as $2000, you'd recover that in about 18 months.

Maybe I'm missing something.

 

[Budmantom]

Originally posted by: Rio Rebel

I too don't pay points but the fees do add up especially if your working with under 100k it takes time to get your money back.

I guess that makes some sense. Still, I can't believe you'd have to stay there 5 years with a 2% drop to get your money back. According to my calculations, if you borrowed $100,000 for 20 years, and the interest dropped from 7 percent to 5, you'd save a little over $110 a month. Even if your refinancing fees were as much as $2000, you'd recover that in about 18 months.

Maybe I'm missing something.

Lets see my condo was 65k and a 2% drop saves me about $85 and 1% saves $44 add in $2k so it would take right at 4yrs to be even at a 2% drop and almost 6yrs at 1%. But that was my situation and the higher the $ amount the more attractive it becomes to refinance. Thats if my math is correct.

Tom

 

[Farmall]

Originally posted by: Rio Rebel

I too don't pay points but the fees do add up especially if your working with under 100k it takes time to get your money back.

I guess that makes some sense. Still, I can't believe you'd have to stay there 5 years with a 2% drop to get your money back. According to my calculations, if you borrowed $100,000 for 20 years, and the interest dropped from 7 percent to 5, you'd save a little over $110 a month. Even if your refinancing fees were as much as $2000, you'd recover that in about 18 months.

Maybe I'm missing something.

No you are not missing anything - There is no way on a 2% drop it could take 5 years to get the money back unless they have some sort of weird costs figured in. We are closing on our refinance in a couple of weeks - dropping 2.125%, our loan officer told us the pay back would be right around 1.5 years. On a Refinance it is all determined on the time you plan on being in the home whether or not its "worth" refinancing or not.

The only other scenario is as was mentioned above - if your loan is small enuf then it could potentially take longer to break even, but even then a refinance would still be attractive if you are staying for a longer period of time if the home.

 

[Budmantom]

Farmall I guess you didn't read my last post the price matters. If your talking a 200k house and 2% that's one thing but a 50k house will take a bit longer.

 

[HomeBrewerDude]

Originally posted by: Budmantom

Originally posted by: Rio Rebel

I too don't pay points but the fees do add up especially if your working with under 100k it takes time to get your money back.

I guess that makes some sense. Still, I can't believe you'd have to stay there 5 years with a 2% drop to get your money back. According to my calculations, if you borrowed $100,000 for 20 years, and the interest dropped from 7 percent to 5, you'd save a little over $110 a month. Even if your refinancing fees were as much as $2000, you'd recover that in about 18 months.

Maybe I'm missing something.

Lets see my condo was 65k and a 2% drop saves me about $85 and 1% saves $44 add in $2k so it would take right at 4yrs to be even at a 2% drop and almost 6yrs at 1%. But that was my situation and the higher the $ amount the more attractive it becomes to refinance. Thats if my math is correct.

Tom

2k for a loan that size sounds way high.

 

[Budmantom]

2k for a loan that size sounds way high.

I agree that's why I passed on it, now it's rented out and I think it's alot more difficult to get a house refinanced that you are not living in, I could be wrong does anyone have any insight on this?

 

[bunker]

I was in the same position as you.
I recently refinanced from 7.25% to 6.00% and it saved me $200 a month. It was an FHA streamline loan so there were no closing costs.

 

[Rio Rebel]

Budman,

I'll tell you what we're currently doing, and maybe that will help give a reference. I believe you can get as good or even better rates if you research it enough and choose the right institution (I like the convenience and strong relationship I have with my credit union):

We are refinancing about $150,000, going from a 12 year note at 6.375% to a 10 year note at 5.125%. Our credit union charges a fixed percentage for refinancing fees - .75 point, capped at $1200. So our fees will be 3/4 of 1 percent of our loan, which is about $1125. This includes everything - appraisal, financing fees, credit report, etc. The only thing this doesn't include is the interest payment from our closing date to the first payment date, and our escrow costs that will be re-imbursed when the old escrow account is closed. I don't count those payments, because the interest is not a "fee" but simply a legitimate payment for interest to the 1st of the month, and the escrow fees are reimbursed. So I've said all that to say that our legitimate out of pocket cost of the refinance is $1125.

If I were refinancing to the same term (to compare apples to apples), I'd be saving almost $100 a month, which means I'd cover the cost of the refinance in a year. Since I'm cutting the term as well, this doesn't apply to me - but the principle is still there.

I changed the number to $85,000, and I can see where you're coming from. It would only save about $50 a month on that amount. However, at least at my credit union, that would also reduce the initial fees to $637.50...so in this case you would still make up the difference in a year and a half.

All this is subject to your particular institution, your credit rating, and your loan amount. If you pay higher fees up front, and you're borrowing less, obviously you aren't going to see the same benefit by refinancing that a person would at twice the amount.

Good luck to you.

 

[Budmantom]

Thanks Rio,

I'll check out my credit union see if they can do any better, that is definatley an easy decision for you. My current interest rate is 7.375 so it should be atleast a point perhaps 1.5 and with anyluck it will appraise close to 20% higher then I bought it for so no pmi.

Thanks again,
Tom

 

[Rio Rebel]

One more tip: PMI is not a constant charge. One bank will charge more than the next. I didn't realize this until I refinanced the first time, and the person told me that I had been getting raped on PMI on my first mortgage.

But many banks will actually break it up for you into a simultaneous 1st and 2nd mortgage to help you avoid PMI. For example, I've hear of people getting an 80-10-10 loan, where they paid 10 percent down, financed 80 percent (getting out from under the PMI), and getting a simultaneous 2nd mortage for the last 10 percent. Not everyone will do this, but I know for a fact that some banks will.

Good luck to you - God knows they should offer a college degree in just being middle class these days.