Generally speaking, what does one have to do to refinance a home?
I currently have a 5.385% 30-year fixed-rate loan. I might be able to get a lower rate if I refinance. Also, my loan is with a bank other than my credit union. It would be much handier to have the loan at the same bank as my accounts. Zillow.com says my house is worth about 61% more than I originally paid for it, and more than two and a half times what I owe.
Would I have to get an appraisal? What’s the process of refinancing? (I’d ask my credit union, only they’re closed today.)
In my experience, refinancing is as simple as calling around to various lenders (or going through a broker), finding one with terms that you like, and applying. If you’ve got as much equity in your house as you say, you should have no problems.
I’m considering a refi myself, but I’ve got a little less than 5% equity in my house based on its 2007 appraisal, and I doubt that it will appraise at that same value today, given that the bubble finally did hit Charlotte.
If my house is worth exactly what I paid for it, I have about 33% equity. It was appraised before I bought it in 2003. Even with the bursting of the housing bubble, I’m sure it’s worth more – even if not as much as Zillow says. The one thing I’d like to be sure of is that the property taxes and insurance premiums are held in escrow and paid automatically as they are now.
That’s standard, as far as I know. I don’t even know how you’d go about arranging for it to be any other way.
Disclaimer: everything I know about these processes comes from having gotten 2 mortgages and 1 refi. And my ex-mother-in-law does loan origination and has been in the real estate financing business for 30-odd years.
I had the option of including taxes and insurance in the monthly payment, or not, when I set up the loan. I don’t know why anyone would choose not to include them, which is probably why it’s ‘standard’.
On my current loan, I have it set up to apply an extra $100/month to the principal amount. I’m sure I could do that with my C.U. as well.
You will have to get an appraisal, yes. Or rather, you’ll have to pay the bank/CU to have someone appraise your house. IIRC, they can only loan you 80% of the value of the house on a refi (up to 90% if you tie a HELOC in with it). You’ll probably have to pay them something upfront to get the ball rolling and from there it will be easy to see if it’s worth it. Either your new payment will be higher then the old one or it will be lower then the old payment. If it’s lower look at how much lower it’ll be and figure out how long it will take you to over come closing costs. I just refi’d, it brought my payment down by about $150 (with taking $13,000 out in the process. I believe the closing costs were about $1200. So it’ll pay for itself in less then a year.
In my experience, it is pretty simple. A credit check, lots of forms and a few weeks time - along with a couple of grand in closing costs. I’d shop for the best deal - not just your bank. I see no advantage to the same bank - and you can always arrange for automatic payment from your bank to the mortgage holder.
I have refinanced twice, once in 1992 (2 years in) and once in 2003. The first time (little equity), I had to pay for an appraisal, the second was done with what the banker called a ‘drive by appraisal’, no fee. By the time of the second, I had 80% equity and was refinancing for 50% to do an addition. The second was at the beginning of the mortgage madness, so I have no idea if the ‘drive by’ was because of loosened practices or because of my equity.
My advice would be to :
Look closely at closing costs and figure out how long it takes to get that amount back
Avoid taking equity out unless really needed
Look at a 15 year term - in my case, interest drops meant that the payment stayed the same but the term was cut in half.
If I refinance 2/3 the amount I originally borrowed (assuming another 30-year fixed-rate loan) at a lower interest rate (or even the same rate I have now), monthly payments should be lower. That would be a good thing. But really, the reason I’m considering it is for convenience. Except for the mortgage and the checking account (which I never use) associated with it, all of my other accounts (plus a car loan and one of my credit cards) are with the credit union. By having the mortgage at the C.U. I could avoid having to remember to put money into the other account, since the payments would come out of one of my existing accounts.
There’s also a good chance they’ll give you a deal on the closing costs for that.
At my bank if you have a savings account and checking account you get $300 off your closing costs. So a few days before closing I opened a savings account with $25 in it. That money is just sitting there idle, but it saved me $275.
I would love to build a new kitchen and turn the existing one into a library. I would love to build a garage. But I won’t get an equity/home improvement loan to do it with. Debt is anathema to me, and is to be avoided whenever possible. (Not possible for the house and the car.)
I’ll ask about a 15-year loan when I talk to the C.U. It hadn’t occurred to me that the payment might stay the same. Thanks for the suggestion.
Meant to add that you can play around with lots of mortgage cacluators (google) and learn a lot. For example, this one lets you explore various rates.
Also, don’t forget to look at the total interest you will pay over the life of the loan. This one shows you an amortization schedule.
A 15 year $200k mortgage at 3.75% costs $61,800 in interest while a 30 year $200k at 4.4% costs $160,500 in interest. At those rates, the 15 year does cost $1454/month vs $1001/month - for reference, $200K at your current rate would be $1121/month.
So, with current rates for a 15 year, for an extra $330/month you save $100k in interest. If you borrow less this time than last, it gets even better - all depends on what you need to pay off the existing note.
(1) www.bankrate.com is your friend. Super, super useful to compare rates for any variety of different mortgages.
(2) Really, with auto-deposit, having it at your core-account bank seems (other than if they give you a really bitching discount) a very minor consideration. My mortgage lender just pulls the money out of my core account on the first of each month. (My mortgage was also re-sold to a bank I have a credit card with, so all my mortgage details have started popping up whenever I visit the credit card webpage).
(3) There will be an appraisal and I am almost certain it won’t be a drive-by these days. They will probably come in, take photos, measurements, etc.
(4) Get as long a rate-lock as you can! 30 days is by no means safe. Why? Regular foot dragging PLUS meltdown-inspired extra scrutiny has meant extraordinary delays in processing these things. Mine took five months, and my credit’s perfect. A co-worker just took over a year (!) (she had a kind of non-standard property (duplex) and her rate went up twice during the debacle). Also, these guys are in the real estate business, so inherently tend toward sleazy. See what happens when you lock in a really low rate and then, perhaps, rates rise by a quarter or half point. You’d be SHOCKED how many “issues” can come up as the end of your lock period approaches.
(5) Relatedly, do some Google research (e.g., research “Wells Fargo mortgage approval delay” or the like) to determine which companies have spawned a lot of horror stories for delays in closing. Even if it’s through sheer ineptitude or backlog, if you miss/postpone the closing a few times, you can hose yourself on your credit record going forward. The banks are being stricter about how quickly a credit approval and/or house appraisal “expires” and if your closing can’t be scheduled within a couple of months of your initial approval request they may well have to pull another credit report. Mine was pulled three times and shortly thereafter, despite my perfect credit, I was turned down for the first time in my life when I applied for a new credit card, on the basis of excessive pulls.
Also consider going forward making extra payments to principal (you can auto-schedule this too). A good rule of thumb is if your mortgage rate is more than what you could reliably get with a cash investment, you’re better off paying down principal on the mortgage than holding cash or other investments, but if you can make more (reliably) with free cash/investments than your mortgage rate, pay your mortgage off per the regular schedule.
Right now let’s say you could get a 30 yr. mortgage for about 4.5%. (The invaluable Bankrate tells me you could, and if you’re willing to go with some possibly-sketchy virtual banks, maybe could get almost down to 4.25%). The best bank account I know of (savings) is currently hovering around 1.5% or a little more. Because the mortgage debt is long-term, a better comparison might be a long-term CD, which Bankrate tells me maxes out at 2.63% for a 5 year CD. So unless I’m willing to take on some additive risk beyond cash or quasi cash investments, it’s clearly better for me right now to pay down my mortgage (except that my analysis is not sophisticated enough to take into account the future “benefits” that I’m giving up by paying less tax-deductible interest in aggregate).
I worked for Quicken Loans a few years ago, and the entire refi process was handled by us, including the appraisal. Someone would call us, we’d determine if it was a good idea to refinance, and if it was, we’d have the client apply.
After an approval and such, we would typically do an electronic appraisal (using software that checked market rates, selling prices of similar homes) for small loans, and send an appraiser out for large loans.
I’m currently refinancing my first with my current mortgage holder. Unlike the OP, my second puts me upside down in today’s market (and apparently second holders are willing to subordinate in this day and age!).
Because it’s the same bank, it’s easy. All I need is an appraisal (crosses fingers) and to pay the actual costs. The drop in interest is such that by going to a 15 year mortgage from the balance of my 30 year, I’ll knock nine years off, about $90,000 from the total payments, and keep the same payment.
It was a refinance but our new home was just purchased on a 15 year note at 3.875% through Wells Fargo (missed the lock on 3.75% by a day dammit!). 30 year was at 4.625%. Somewhere on that site as I recall you can put your mortgage in and then add $100 (or whatever) a month and it reamoratizes for you and you can see how much you can save by paying extra on the principal. Good luck–right now is a great time to refinance or purchase.
I just refinanced (I closed last week). I had plenty of equity, great credit and a good job. I got a rate of 4.375% for a $250000.00 loan for 30 years. I ended up paying about $1500.00 in total fees for the privilege. Was that a good deal? I really could not tell you (although I suspect it is not the worst deal I could have gotten). I am not even certain of that $1500 figure. In the course of writing this post I went back and looked at the figures until they gave me a headache (not the first headache this process has given me).
It was almost certainly the best rate I could get without paying points.
It is very, very difficult to compare deals. Even during the application process things appeared to change. I started the application process based on the broker’s Good Faith Estimate. However the bank mailed me multiple GFEs during the application, all of which showed higher fees. The broker told me to rely on hers, but this was definitely a red flag and I went into closing prepared to back out, but the deal was as she said it would be (anyways, I think it was, but I wouldn’t bet any essential body parts on it).
Your best bet is to find a broker that someone you know has used and was satisfied with.
The credit union just called. They’ve received the appraisal on the house. My refinance loan has been approved. I should be signing the papers in a couple of weeks.
The appraiser’s figure (he came out 5 October) is just about 61.5% greater than what I paid for the house.
When I applied for the loan in late-August, the interest rate on a 15-year fixed-rate loan was 3.875%. September came round, and I was extremely busy at work. Plus I procrastinate. When I finally filled out the forms they’d sent me, the interest rate dropped to 3.75%. Maybe I could have gotten a lower loan somewhere else, but the main point of this exercise was to keep everything at the same bank. They’ve been good to me over the years, and to my father before me. Convenience and simplicity is worth a 3.75% rate.
It depends on your risk tolerance and financial strategy. Where else can the average person get a loan of a $100k or more at 3%? Borrow at 3%, invest in a low risk market portfolio at 7%, pocket the difference. It’s not arbitrage becuase there is a very real difference in risk between the loan and investment.
Another way of thinking of it is if I have ready cash, would I rather pay down a 3% loan or invest in stocks/bonds that earn a higher return.
Not advocating this approach, but it’s a rational reason to go for the longer term note even if you have the cashflow to handle a 15yr note. Given that the OP is “anathema to debt”, this option is probably not viable.
