I’ve been in my house just over 2 years now. I’ve got a fixed-rate 30 year mortgage at 4.875 percent. Because I was (literally) between jobs at the time, and because the mortgage market was so fragile, I had to get an FHA loan. To clarify, my income and credit were and still are sufficient to get a regular loan, but because I was transitioning out of the military and didn’t have a history with my now current employer, I did this FHA thing. Even though I put down 20% (instead of the minimum 3%), I’m still required to pay the FHA PMI for another 3 years, which is $104 a month. Also, rates have apparently gone down since 2009 (who knew?!) and I’m not getting offers at 4.375% or less. At that rate, I could save another $100 a month or more.
Some of these places are advertising little or no fees, and at a $2400 a year savings, it seems like a no brainer. I’m still skeptical though – I have no beef with the current bank, and I don’t want to stir up a hornet’s nest just to save a few bucks. Have any dopers gone through a refi? Pleasant experience? Greedy cash-grab? What says the wisdom of the masses?
I went through a refi and it was hard and expensive (had to pay the fees plus put more equity in plus beg the appraiser to appraise at the right price) (he did!) but it ended up being worth it for all the money I’d save. I think it’s already paid for itself in less than a year.
But, I was going from 6.25% to 4.69%, plus I put equity in the house to even get the loan, which lowered my payments, so my situation was way different from yours.
One thing I did notice was that in the refinance sales material from the bank the “no fees” refinances were only for their Adjustable Rate Mortgage products. The specials they were advertising did not apply to my 30 year traditional. I also think the lowest rates were only for ARMs.
Another thing to note is that if you are switching banks you will probably need to front the escrow balance for the year. You will get a check from your previous lender that gives you back the money you had in your escrow account with them, but you will have to lay out that initial cash to get the new loan.
Do the math. If it’s truly no-fee for the product you want and it will save you money in the long run, do it. But do the math a few times to make sure you’re doing it right.
I doubt your experience will be remotely similar, but that’s mainly because we made the mistake of going through the same bank for the refinance as we currently have a mortgage with, which leads to zero incentive for hurring things along.
My suggestions would boil down to 2 things:
figure out how much your house will appraise for. I know, you won’t know exactly. And the company’s going to ask for an independent appraisal anyway. But if your home’s value has decreased to any significant degree it may be worthless to even consider the process of a refi, having been in the home only two years.
Get in writing that good faith estimate of costs. Calculate it all out. There are tons of mortagage calculators out there and plugging in your numbers will give you a good indication of whether a .5% decrease with, say, $2400 in refinance costs, are worth your time.
Since you put 20% down only 2 years ago you are likely in a good spot (not underwater) in terms of getting approved. I don’t know FHA but any non-FHA wouldn’t require PMI with 20% down (or 80% loan-to-value).
Just be cognizant that there will be costs and fees somewhere - some sell themselves as no fees but they just bake everything into the overall mortgage. I prefer to pay the money up front and calculate the payback out of my monthly savings (is it going to take 1 year vs is it going to take 4 years).
Rates are low low low right now so if you can swing it you should be able to lock in a good number.
One thing to keep in mind is that you’ve already been paying for 2 years on your existing loan. So if you refinance you’ll end up with a lower monthly payment and you’ll “save” money per year, but you’ll be paying for an extra 2 years at the end of it.
You will be better off in the long run if you can afford to refinance to a 15 year mortgage. It will be more expensive per month, but then you’ll have 15 extra years of no mortgage payment at all.
Just looking at the monthly and yearly costs is a bit short sighted. Make sure you consider the long term costs as well.
ETA: The refinance process itself, at least when I went through it, was pretty painless. Don’t worry about offending your bank. They’ll sell your loan in a heartbeat, so don’t feel bad about dropping them and going to another lender.
Good point – nobody is going to go through the work of re-doing a mortgage for free. They’ll either charge you a couple grand up front, or pretend they’re not charging you, but add it on to the total of the new mortgage, so you’re actually re-financing for more than you owe now.
So it can’t hurt to ask about rates and fees, and calculate whether it’s worth it, just make sure you get the real answer on fees. In fact, if I felt at all like I wasn’t getting the real answer on fees in any way, I’d skip that lender. There are plenty of people who will re-finance and be straight up with you, so no reason to go with a shady lender.
By the way, when you’re doing the calculation, the biggest variable is going to be how long you stay in the house. If you’re likely to move in a couple years, re-financing is probably never worth it; if you stay around a long time, you’re much more likely to come out ahead. But getting rid of PMI is a very good thing financially, so you might come out ahead fairly quickly.
One way to estimate the appraisal value: look at property tax appraisals for your area for the year you bought, and this year, and compare those to the appraised value.
Our county has a history of tax values being less than the house would sell for (as an example, the year AFTER we bought, it appraised for 80% of what we paid; our tax value now is similarly below what a bank appraiser said a year ago).
Getting rid of the PMI is savings right off the bat on money you’re basically throwing away, but the costs of a refinance might outweigh that. 4.875% is not the best rate but it isn’t an awful one, either, so the monthly savings might not add up to enough in the short term.
The ideal situation would be you lowering your payment enough, but paying enough extra, that you’d wind up with a lower payment AND still paying it off in 28 years (the original payoff date of the original loan).
Also if there’s any chance of moving in, say, the next 5 years, I doubt I’d bother - the costs would outweigh most of the savings.