How to refinance my house?

February 2, 2013 3:15 PM

My mortgage rate is 4.375%. I know that I should refinance because I can get a way better rate. I feel overwhelmed by the idea of figuring this out. Treat me like a small, small child and walk me through what to do?
posted by corn_bread to home & garden (13 answers total)

Since there are significant costs involved, a better rate doesn't automatically make refinancing a good idea. You should assess how long you're likely to keep this house, because if there's a significant chance you'll sell it before the savings pays for the refinance costs, this may be a bad idea.
posted by jon1270 at 3:23 PM on February 2 [2 favorites]

First, check with your lender. My bank has an expedited refi process with just a $200 closing fee... a very good deal. If they don't have something like that, check around with various lenders and find the best rates, then meet with them and let them walk you through the requirements, costs, process.
posted by HuronBob at 3:24 PM on February 2 [1 favorite]

Check more than one lender, as well. Our go-to for banking and insurance turned out to be heinous at refinancing. The process took forever (about 7 months) - we had to have the appraisal done a second time because so much time had passed. In any case, shop around, and be prepared to deal with lots and lots of requests for income verification, tax records, 401K, etc. The amount of paperwork now seems staggering compared to what it was several years ago. Try to work with someone local, if you can.

More than once, I've told lenders through gritted teeth that if everyone had been this careful 5 or 6 years back, perhaps none of the mess would have happened to start with.
posted by jquinby at 3:31 PM on February 2

Mortgage rates are going up quickly, and you might not be able to save even 1 percentage point right now (we JUST closed on our refi yesterday -- rate was 3.6something. Old rate was 4.875%) and there may be significant closing costs.

We went through a mortgage broker who shopped the rates for us. Our former bank wanted to screw us up with TWO points. Ugh. (Bank of America) _ new one is Chase.
posted by DMelanogaster at 3:35 PM on February 2

Oh, and as for the process: you contact your lender(s) and tell them you'd like to refinance your mortgage. They'll gather information on your home, current balance(s), and whatnot and run up an estimate - including closing costs. Look at the various and sundry offers, select your lender, and tell them you want to move ahead.

The paperwork circus I mentioned above now starts in earnest. Everyone wants to know everything before it goes off to the underwriters. There may be an appraisal. You'll need payoff amounts for the current note, etc. If everything looks good, a closing date will be set and you'll sign about 1" worth of papers. They'll give you a new payment book and tell you what your payment will be and when the first one is due.

From your old loan, you'll get a payoff letter (Congratulations!) and anything that's left in the tax escrow account. Then you start making your new payments with the new rate. Hopefully it moves faster than my 7 months.
posted by jquinby at 3:37 PM on February 2

Possibly a stupid question: do I contact the original lender or the one it's been sold to?
posted by corn_bread at 3:38 PM on February 2

For a refinance, you can contact any lender you'd like. You're basically applying for a new mortgage, so it can be with your current lender, or someone new if you get a better deal. We gave our current bank a shot at it, just for the hell of it, but ended up going with someone else.

A mortgage broker (as mentioned above) will be able to shop around. We used one for a new home purchase and it was much easier than going from bank to bank on our own.
posted by jquinby at 3:43 PM on February 2

Wow, some of the comments so far sound nothing like my own experience with this.

Yeah, you can do a hell of a lot better than 4.375 if you have even halfway decent credit. Right now, you should get somewhere around 2.875 on a 15-year or 3.5-3.625 on a 30 year (both fixed, it sounds like you know better than to play the ARM game, so off to a good start). Even if rates go up (not expected), you lock in at the rate they quote when you start the process.

And keep in mind that a ReFi doesn't (normally) have all the same hoops to jump through as getting the mortgage in the first place - When I ReFi'd about a year ago, it basically cost me the appraiser's fee plus $50. I had to fill out a half-page form listing my assets and income, then it took a whole 10 minutes to "close", most of which consisted of the loan manager reading to me half a dozen bits of required-to-disclose crap. Except that BoA (they bought the original, I would never voluntarily do business with them) made it as hard as possible to get an official payoff amount, the whole process took under three weeks - One waiting for the appraiser, and two waiting on BoA who had excuse after excuse for why I hadn't yet gotten a first class letter after more than 10 days.

To kick things off, start by asking your normal bank(s) and your existing lender for a quote. If it sounds high, don't despair, do some shopping around (if you have any Realtor friends, they will personally know every mortgage broker within 200 miles and which ones will give you a good deal vs which ones will screw you hard).


Possibly a stupid question: do I contact the original lender or the one it's been sold to?

The one that bought it. The original lender has nothing to do with it anymore... Though it couldn't hurt, if you liked the original lender and they haven't gone under, to get a quote from them as well.

Most importantly, this kind of credit check causes a small hit on your credit rating, so get them all done within a week or two (multiple requests in a short timespan only cause one "hit", but shopping around every month will stack up against you).
posted by pla at 3:46 PM on February 2 [3 favorites]

IMO mortgage broker is the way to go. I never got anywhere going to banks directly. Your milage may vary.
posted by humboldt32 at 3:50 PM on February 2 [2 favorites]

When I was dealing with mortgages and refis, I used bankrate.com to find/compare rates and lenders. Once you find one you like, they will handle contacting the old lender to pay off that loan.
posted by sarah_pdx at 4:05 PM on February 2

2nding the mortgage broker idea. Ask around for someone people like, or look online at yelp if that's a good resource where you live. (Awesome) Mortgage brokers are awesome.
posted by small_ruminant at 7:09 PM on February 2

Frankly, I recommend checking out The Mortgage Professor's website before you take any action on the refinancing transaction. I've found that the process of shopping for a mortgage is incredibly opaque (as you may have found as well) and this site really does a good job providing information on how to be a smart mortgage shopper/consumer. (See here for a list of common refi pitfalls.) There is also a set of very good calculators on his website that allows you to make a quick calculation as to whether a re-fi is economically feasible given the costs associated with the transaction.

Just remember, there ain't no such thing as a free lunch and "no closing cost" re-fi's actually end up rolling the fees into your premium so you end up paying more for it over the long term. If you lack the up front cash and you want to take advantage of the new rates, then that is a different story.
posted by scalespace at 9:15 PM on February 2 [2 favorites]

scalespace : Just remember, there ain't no such thing as a free lunch and "no closing cost" re-fi's actually end up rolling the fees into your premium

Sorry to reply to another poster in an Ask, but that doesn't really hold true if you go directly through the issuing bank. They make their money on the interest, not on the origination. I know exactly where all the fees went on my refi, and with the exception of around $15, I can account for every dollar I paid (including the amount considered as the "loan" itself) as going to cover a valid expense.

That said, if you go through a broker, yes, they will get paid. But they have connections and might - might - get you a rate that saves money over the life of the mortgage despite the up-front costs. Weigh all your options, and to agree with Scalespace, make damned sure you know where your money has gone... "No money down" doesn't necessarily mean you haven't actually lost ground on your mortgage.
posted by pla at 9:37 PM on February 2