Questions about refinancing
May 4, 2012 3:18 PM   Subscribe

When I call my credit union they offer me a 4% loan, when I call the broker who found my current loan (but works at a new place), he quotes me 3.75%. The credit union would keep the loan themselves. I have no idea who the other loan is with. Assuming closing costs are comparable, how do I choose between these two offers?

My mortgage is currently with Wells Fargo, and I've had it for about three years (it's a 30 year fixed-rate). I have had no problems with it at all, and I'm not really sure what a problem would look like since I just pay every month online.

Why should I care who owns my loan?

What problems might crop up that having my loan locally held might mitigate?

Why is the broker able to offer me a lower rate, and, again assuming the same closing costs, is there some catch to the broker's offer?

If I "lock in a rate" at one place, can I still look for lower rates or ease elsewhere, like with my current bank?
posted by OmieWise to Work & Money (11 answers total)
Ideally you'd be better off getting 3.75% from the CU -- Can you call and ask your credit union if that'd be possible, citing your broker?
posted by suedehead at 3:21 PM on May 4, 2012

You may have to pay points up front to get the lower rate. Ask about points for both loans.
posted by Longtime Listener at 3:24 PM on May 4, 2012 [1 favorite]

Assuming closing costs are comparable.

Chances are, they aren't. Your broker's loan is probably achieved by charging you discount points. (on preview, what Longtime Listener said).

Whether it's worth buying down the interest rate depends on how long you'll keep the house. If you only stay a few years, the lower interest rate with points will be more expensive overall, not less.
posted by jon1270 at 3:28 PM on May 4, 2012

Response by poster: I plan to keep the house for quite a while. I asked about points and closing costs, and there were none and they were comparable (if slightly higher from the broker).
posted by OmieWise at 3:50 PM on May 4, 2012

Well, the math is pretty clear: On a $250K 30 year fixed mortgage, at 4%, you'll pay $1194 a month, or just under $430,000 over the life of the loan. Same amount at 3.75% will run you $1158 ($36 less/month) or just about $417,000 in total. Difference is about $13,000.
posted by NotMyselfRightNow at 4:03 PM on May 4, 2012

It's so easy to charge fraudulent late fees, insist on larger escrow balances, and force extra insurance coverage-- as well as perpetrate other abuses-- that I would be very leery of a mortgage held by someone I didn't know.

Check out this thread (latest post last month) for a roster of horror stories that might define one extreme of what could happen to you.
posted by jamjam at 4:03 PM on May 4, 2012

Who owns the loan does not matter in my opinion and experience. In fact after you get the loan it is possible (maybe probable) it will be sold to a larger servicer. I have had this happen several times with little consequence, it usually ends with someone like Wells Fargo servicing the loan...

If you lock a rate this usually incurs a cost from you, but no responsibility to actually get the loan - so if it's cheap enough (or free) you can lock and happily continue looking.

Assuming you are in the US, there are several mandated disclosures which a loan provider should show you with an itemized list of all of the fees - you should get this before you give them any money. It should be a relatively simple line by line comparison between lenders.

I say should be, but often as has been suggested above there might be hidden fees or last minute changes to the rate (often this happens after you are already committed) - so in the end it is all about trust. If you trust one provider over the other that might be a good instinct to follow...especially with similar rates...
posted by NoDef at 4:30 PM on May 4, 2012

This tool to compare two mortgages can show you the difference in the costs over time. As long as you pay on time, you are not likely to notice the differences.
posted by procrastination at 5:20 PM on May 4, 2012

Why should I care who owns my loan?

Well, the math is pretty clear: On a $250K 30 year fixed mortgage, at 4%, you'll pay $1194 a month, or just under $430,000 over the life of the loan. Same amount at 3.75% will run you $1158 ($36 less/month) or just about $417,000 in total. Difference is about $13,000.

I guess there's an ideological argument to be made that taking the CU loan supports CUs and their anti-big-bank tendencies. (And, I don't know, maybe possibly that the difference in rate is what lets your CU do nice things like offer free deposit accounts, but I don't know how true that is, really.) The question is whether you want to support your CU to the tune of thirteen grand over thirty years.
posted by Snarl Furillo at 5:52 PM on May 4, 2012

Jeez, this is really difficult to explain...

Shopping for a refi is alot like Uncle Sam contracting with the lowest bidder; you get what you pay for.

Using your CU is a good idea. They care about you as a customer and will provide decent service. If you're considering the 3.75% company, do some research on them and see what customer satisfaction is like.

In any case, I'd try to stick with reputable organizations and take the time to do some research on them. Even though the bubble has burst nothing much has been done to combat predatory lending.

As mentioned above, when people talk about late and other fees, they're not kidding. There are loan servicing and collection agencies out there that have a mission to fuck your stuff up even if you've been a life-long awesome customer.

Be careful and good luck!
posted by snsranch at 6:36 PM on May 4, 2012 [1 favorite]

Also, you can't just consider the difference in fees vs. $13,000 because a dollar today is worth more than a dollar in 30 years.

However, I have no idea how to compare the two.
posted by Bonzai at 5:10 PM on May 5, 2012

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