Mortgage refinance: what to look for.

Factual Questions
1

And this isn’t a normal “I want to reduce payments / take advantage of lower interest” refinance. I just got this mortgage at the end of June. :slight_smile:

I bought a house in June, and got a single 30 year, fixed-rate mortgage at 6.125%. The mortgage company I got the loan through seems to have a business model of handling the loan creation, then selling the loans to other banks.

However, it appears that they are in a situation where they can’t (now or maybe down the line) make that sale. It seems that the loan approval went through on their end when it really shouldn’t have based on their internal guidelines. My house is a “manufactured home”, and those have a bit of a stigma associated with them. Their guidelines state that the “Loan to Value” (the amount of the loan divided by the value of the house) needs to be 90% or lower for manufactured homes.

I made only a 5% down payment, so the LtV is 95% (well, 94.9x% since I have made a single monthly payment).

Obviously, someone on their end made a mistake. So they have come to me with a proposal. They will refinance my loan (at no cost to me) to a 20 year, fixed-rate mortgage at 5.75%.

This has a few points going for it. First: lower interest rate, almost always a good thing. Second: the monthly payment will increase, but it’ll still be within my budget. I had actually been planning on overpaying in a few months (once my financial situation steadies after all the “new house” stuff is taken care of), but there’s obviously a difference betweening choosing to pay off the loan sooner, and being required to pay it off sooner. Third, I’ll hit 20% equity sooner, allowing me to dump that mortgage insurance payment almost 4 years earlier (not taking overpayments into account) than with the original 30 year loan. Fourth, they are covering all the refinance fees that can’t be waived (although I will be combing over the numbers to make sure they don’t sneak it into the principle)

There are a few things I’m confused about, though, and I’m looking for some pointers. Note that I will be consulting with a professional as well.

First off, as far as I could tell, this still puts the LtV at the same point. However, after running some numbers through an amortization calculator, they may be banking on hitting that 90% LtV point sooner (23 months with the 20 year vs. 48 months with the 30). If they hang onto loans for the first couple years anyway before selling, that kind of makes sense to me.

Second, the refinancing contract (specifically the “good faith estimate”) has the loan amount of 190k, the original loan. Is this standard with refinances, or should the payment that I made reduce that? Is a refinanced mortgage done for the amount of the original loan, then the principal payments that were made get’s “rolled in”? Granted, at this point it’s only a single payment so it’s not a lot (about $180), but I don’t want that money to just disappear. It may just be because I’m not looking at the ‘final’ paperwork, so it was rounded out, or they pulled the numbers prior to my payment going through.

Finally, what can they do if I decide to go “Nope, I like what I’ve got, and have a signed contract from you binding you to it”? I’m assuming that the primary goal of this refinance is to benefit them, with some concessions made to make it worth my while.

All disclaimers apply (you’re not a bank officer / mortgage broker / contract lawyer, etc), I’m just looking to get a better feel for the situation before diving into everything with the bank and my loan officer.

2

i have never done a closing in colorado, but i have done over 1,000 closings in ny and nj, so based upon my experience:

there is no such thing as a closing cost that cannot be waived. it may not be the lender’s policy to waive costs, and many lenders flat out refuse, but i have seen it done many times.

as far as your principal vanishing, this is how it works:

you have a mortgage for 10,000
you made one 100 payment, of which 20 was principal and 80 was interest
your payoff balance is now 9,980
your refinance loan amount is for a rounded estimate of the balance of your loan, let’s say 9,990
at the closing, the lender that holds your original loan gets a check for 9,980
you get a check for the remainder, which in this case will be 10

(i don’t know if colorado has wet or dry fundings, if your loan has a 3 day rescission and so forth, so i am leaving all the local what if’s out for ease of explanation)

tell them you want a loan with no pmi and you want them to pick up all costs associated with the closing. this means costs such as the reissue on the lenders portion of your title policy, all recording fees, wire fees, fedex charges, survey and affidavit costs, notary fees, legal fees, tax account set-up fees, credit reports, etc.

not one penny out of your pocket nor built into the loan.

you want every item on the hud to read poc (paid outside of closing)

3

My Humble O is they wouldn’t be offering it if it wasn’t a better deal for them. There are mortgage calculators out there. See what happenes if you make the monthly payments on the 20 yr mortgage, but still stick with the 30 yr one.

In other words (numbers made up, but just P + I numbers)
your current mortgage = 30 years at $500 per month
Your new proposed 20 year rate would be $600 per month

What would happen if you made the $600 (adding the extra $100 to principal) payment on your current mortgage, when would it be payed off? If it is less then 20 years then it is not worth it, if is it greater then 20 it may be.

4

Thanks Can’tUseMyRealName (I was thinking of abbreviating it to CUMRN, but that looks a little dirty). Doing the new loan for 190k, paying off the old loan, then cutting me a check for the difference must’ve been too obvious for me to consider. :slight_smile: The “pay off” amount will probably vary depending on the timing of when we close on the new loan, so that’d be the simplest method.

By “can’t be waived”, I think the bank representive was referring to fees charged by entities other than the bank itself (title fees were mentioned). They don’t have the power to waive those directly, but those costs wouldn’t be passed on to me. Well, provided that’s what shows up on the hud.

One bit of your response confused me, though. What did you mean by asking for “no pmi”? I admit I have a hard time keeping all the financial / real estate acronyms straight, but I thought that was “Private Mortgage Insurance”, which is required (although I’m not sure by who) until the loan amount was below 80% of the value of the house. I thought that was something I had to have until the loan amount was paid down to 160k (since the house is valued at 200k)?

If that’s something that’s negotiable, I’ll definitely look into it. Any tips on getting them to drop it (other than leveraging their current situation)? Or is PMI in the “chassis undercoating fee” category of things, as far as getting more money from the customer?

kanicbird, if I made the 20 year payment amount on the 30 year loan (overpay going towards principle), it’d get paid off in 21 yrs 5 months. So it looks like the interest reduction does help out a bit. I’m well aware that they are in a somewhat sticky situation (or at least projecting that impression) and want to make things better for themselves, but that doesn’t mean I can’t profit as well. The higher monthly payment appears to be the main drawback of the new proposal, and that’s something that I can deal with.

5

sorry, i should have been clearer on the pmi.

you can request that a lender self-insure on the pmi. that works around the ltv issue.

i misunderstood what you meant by “can’t be waived”.

on your good faith estimate, make certain these costs are listed as poc (paid outside of closing) or ptp (paid by third party) to cya, lol

6

Hmmm… for Denver, CO rates for 20 year fixed are 5.30% average. Maybe that’s what the bank is banking on.