How can I tell if it would be worth it to re-finance? Specifically, I have an FHA loan at 7% (it was a bit high because I didn’t have to put much down), and I’ve only been paying on the loan since September 2002. I got an unsolicited offer to re-finance to 5.62% with no out of pocket expenses–the letter says she’ll pay closing costs so she can increase her clientele. FHA is apparently offering good re-finance rates to keep people from leaving and getting conventional loans, but can I trust this type of offer? Is there a general rule for when to re-finance (like, if you can save over a percentage point, or if the moon’s first quarter after the vernal equinox corresponds to the annual migration of the African sparrow)? And why couldn’t I have gotten married and had a spouse to dump this on? I’m only 42, I’m much too young to be making all these financial type arrangements on my own. Next thing you’re be telling me I ought to have a retirement account or some such thing. I don’t want to be a grown-up! I want summer vacation and an allowance! :rolleyes:
Shop around, but rates won’t get much lower than they are now.
I went from 7.25% to 5.75% in three no-cost refinances over two years.
On a loan that new, there’s no reason not to refinance as long as you’re not moving soon.
How do you get a no cost refinanced loan? I am going through my current mortgage, or I was thinking about it. I have beed communicating with a loan officer via email for about a week now. I can’t ever get her on the phone. She is telling me the application and appraisal, if needed, will be $550.00. I don’t know if I will need an appraisal and neither does she. She says the “automated system” tells her. Or maybe the underwriter tells her. I guess I should shop around for a better deal. My rate was 7.25 and that was about 5 years ago. Property values have gone up quite a bit since then.
I will be following this, if anyone has good info, I would appreciate it.
I’m certainly not a financial advisor but I’ll throw my two cents in anyway. We currently have a 7.75% 30 year mortgage. This past week I locked in on 5.3% for 20 years, took over 14K in equity out and my payments are about the same 
Mr. Adoptamom finally gets to build a shop for all of his cool woodworking stuff and I get to refinish my wood floors!
I’m also wondering how you got “no closing costs” also. We were exempted from the appraisal - I only have to show proof of income and insurance - but the actual costs of the closing (the folks who handle the paperwork charge a fee, we must have 12 months of homeowners insurance and taxes in escrow, the title search, etc) are rolled INTO the loan which means no out of pocket expense, but we’re still paying those closing costs. Are you sure this isn’t what they’re advertising?
BTW - I went through American Express and had a complete, not conditional, approval in less than 10 minutes. I spoke with a real, honest to goodness live and POLITE person - how cool is that?
Our intention is to pay the house out in 10 years anyway (that was our plan with our old mortgage and I really don’t see a reason to change it with investment interest rates so pitifully low). Over the past few years, with everyone and their brother pushing us to refinance - I kept holding out wanting to save my refinancing costs to get the lowest possible interest rate. It has finally paid off.
BTW - there are cheaper rates out there than what we got, but we went from a self employed “declared income” mortgage to refinancing on my income only so we wouldn’t have to fool with all of the proof of income crud for DH. That’s why I’m paying approximately 1/2 of a percentage point higher than the lowest rates available.
IMHO, now is the time to refinance if you’re going to.
On that ‘no closing costs’ thing…be wary and read everything twice. Then have someone else read it.
A large chunk of the time they weasel word it and it really means that you pay nothing ‘out of pocket’. But those closing costs are rolled into your new loan.
So if you were refinancing $100,000 and your closing costs would be $2000 (numbers pulled from the air) you pay nothing out of pocket but instead you borrow $102,000.
Fine print…know it…love it.
But yes, if you’re at 7% on a 30 go ahead and refi. You’ll rarely see a better time. Like adoptamom we had an 80-15 loan. They large part was at 8.5% (adjustable) for 30 years and the smaller at 12% for 15 years. I refinanced the entire package into one 6% fixed rate loan of 20 years. AND I took out enough to buy into the Virginia pre-pay college fund for my little girl and get some work done on the porch and a new floor in the living room.
AND my payment went down. Too good a deal to pass up.
And rates have come down again…I’m thinking of refinancing again. I can get 4.875% from my credit union.
Well, the offer says that “because I am eager to increase my clientele, I will pay the closing costs for your FHA streamline refinance” and it also says that there will be “no out of pocket cost to you.” Although she (the loan specialist) had my name and address, this is an unsolicited mailing, so maybe I hit the jackpot as far as stumbling into a no-cost re-finance. I assume she figures I’ll use her if I later go for a home equity loan, or if I sell and take a new mortgage. Meanwhile, she’s got me on her client list. If I call about this, I’ll certainly ask about any costs to me that are being rolled into the loan itself.
See, this is just the thing I was talking about–now I know to clarify “out of pocket” and “no cost”. Anything else I should ask about? Anybody really love doing this and want to do it for me? Really, I’m perfectly willing to be helpless. I’ll bake you cookies. A cake, even.
No. There is no rule. Some people refinance to save $10/month. It’s nice that FHA is lowering rates, but I’d still recommend looking into a conventional if your loan-to-value ratio is under 80% (so you can get out of paying PMI, which is mandatory with all FHA loans).
The best way you can know if you should refinance is by having a qualified - and honest - mortgage broker look at your own personal situation. Rates are basically the lowest they’ve ever been, but not everyone qualifies for every rate. There are so many factors - how much money you make, the property value, your assets, your credit history, etc., etc.
If the loan officer says she will pay closing costs, that’s probably a valid offer. My loan officers often pay closing costs, although it cuts into their own take. Make sure she isn’t charging any points, though.
-Kyla, Mortgage Processor
I did my whole refinance via internet.
It was the best customer service I have ever had in my life. Seriously.
Everything was upfront, no BS and they were quick.
I went from 7.85 to 6 percent.
I am saving about $200 a month on payments and I took out a small amount of money.
By the way, I used both Lending Tree and Quickenloans and finally selected Quickenloans. There were lots of offers, fast…some were too good to be true and they were…I selected the guy who was upfront and told me the “bad” news flat out and said he would help fix a few credit “dings”. He did everything he promised and more.
There has never been a better time (I am paying less interest than my father did on his house!) and I am still kind of amazed I did it all via internet!
Do it now!
A true “no closing costs” loan usually has a higher interest rate than the equivalent loan with closing costs.
But why I’m really posting is this statement:
Lenders, analysts, talking heads, and your grandmother have been saying this for the last few years. Each time the rates drop, they say it again. Rates can go lower. They can go much lower. Another terrorist attack on the scale of 9/11 (or even a tenth of the scale of 9/11) would trigger a panic in the stock market, causing people to flee to bonds and force interest rates lower across the board.
I believe we’ll see a 5% 30 year fixed rate before we see an 8% 30 year fixed rate. If you can get a true no closing costs loan, do it (assuming the rate is reasonable). I difference of an 1/8% makes very little difference in your monthly payment, unless the mortgage is large. Odds are, you’ll have another chance to refinance to an even lower rate. If you pay closing costs, that money is wasted if you refinance again.
We refinanced a floating rate loan (that had dropped to 6.9%, but had been as high at 8.7%) on a second house that we own that my MIL lives in. Tossed in a second, and even with the downturn in property values in that area due to some unemployment issues, managed to get the payment for the new loan lower than the payment lower than the original primary. We did pay small closing costs (a few hundred $$), but by choice – we wanted to move the loan to a particular lender (USAA) that does so well by us on all our insurance needs.
Of course, I remember the ex-FIL years ago being mocked by his family for that “outrageous” 4% mortgage he took out on the house “way out” in the suburbs of Cleveland (Cleveland Heights, about 15 minutes from downtown). He laughed all the way to the mortage burning 30 years later.
A “no-cost” refinance will have a higher interest rate than a zero-points loan, but it can take a number of years for the interest rate savings to make up the difference in closing costs. My current loan came with -1.375pts, eating all of the closing costs (title, appraisal, lender fees, recording, etc.).
Rates ARE at 5%. At least, the very lowest ones were, on Friday. This was at par* though, so you’d probably have to pay a little money to get that rate.
*Par is the point where the broker neither makes nor pays money from/to the bank. The higher the rate, the more the broker makes. If you want, you can buy down the rate and get below par. If the rate is at par, the broker doesn’t have much incentive to get you that rate unless s/he charges points up front. But it can be worth it.
My ratio isn’t at a point where I can forego the FHA loan and move to a conventional loan, so I’m thinking 5.62% may be as low as I will be able to get. Under the streamlined process, I don’t have to re-qualify, I just have to show that I’ve been paying on time. If I’m understanding all the postings, I may be getting my closing costs paid in exchange for the higher interest rate, but where do points fit into this? (I did have some grasp of points et. al. when I bought the house–I’m not a complete idiot-- but it was knowledge that ran like water from my brain.)
We’re refinancing now. We’re actually seeing the lender on Monday. Our original mortgage was a shade over 8%. The new one will be a bit under 5, for 15 year fixed. We’ll get a bit out of the refinance that we can apply towards a new garage.
IF there are NO costs involved 5.62 is better than 7%. You don’t need anyone to tell you that. Give me all the information and I’ll do the math for you. Just make sure you have all the info.
Basically, there are a lot of costs that are incurred while doing a loan, like the appraisal, underwriting fee (which the bank charges), credit report fee, title insurance, etc., etc. These are the closing costs that your broker is promising to pay. But she can still charge points on the front. Basically, a point is one percent of the loan’s value. Depending on the market you live in, charging points may or may not be a common practice. (I used to be a processor in California - everyone charged a point or two on every loan. Here in Michigan, it’s only done if the loan amount is really small and the broker wouldn’t make much money otherwise.)
Make sure you get a copy of the Good Faith Estimate and look at it very carefully. Ask your loan officer to explain any fees you don’t understand. Many unethical brokers have been known to stick weird and unnecessary fees in there, preying on their borrowers’ ignorance of the mortgage process. Points are usually listed on the GFE as Loan Origination Fees.
I don’t want to scare you, but there are unethical and basically ignorant people in the mortgage industry. The recent boom in the business has created a lot of jobs for people who often don’t really know what they are doing. You might want to find out if your state requires some kind of licensing for brokers - you could probably relax if it does. In California, all mortgage officers must pass the real estate exam and be licensed to broker loans, but here in Michigan, there’s almost no regulation at all. I’d be nervous as hell if I was trying to find a legit broker in MI, because as far as I can tell, pretty much anyone can just set themselves up as a broker. I’m not sure how this varies from state to state, though.
Good luck!