But the mortgage worked the hardest of them all
May 30, 2012 5:05 PM   Subscribe

What do you wish you had known about mortgage refinancing?
posted by LonnieK to Work & Money (19 answers total) 11 users marked this as a favorite
I've never gotten one, but I've worked in a "Homeowner Assistance" unit where we tried to keep people who had been through the darned things from being foreclosed upon. The biggest mistakes seemed to mostly be in the "not doing the math" (realizing what the new payment would really be, especially if the interest rate resets at different future points; realizing how much the total cost would be; etc.) and "not understanding who you are actually dealing with" (banks can and will sell your mortgage/service of your mortgage, different banks have radically different levels/styles of customer service) areas.

Quite a few people seemed to have done OK with one part of the mortgage process (the original, say) but not another (the refi, the HELOC.) A lot of times we dealt with people who had refis with us, but HELOCs with absolute jerks; I'm sure the opposite was also true, we just didn't deal with HELOCs much at that office.

If I were getting a mortgage, including a refinance, I would do a LOT more investigating, writing every last thing out on paper, having an intelligent friend read through the paperwork, letting an accountant weigh in stuff than any of the struggling homeowners appeared to have done. I'd also try and make sure I was dealing with a bank where actual decisions can be made by people you can meet in person. "Send your paperwork to this address and just as soon as we can battle our way through a seven-month backlog, we'll give you a call" is not fun. I honestly don't even know how possible that is these days, but it'd be something I'd really try for.

And I would never, ever, ever put any monthly cash saved into anything that didn't improve the house's bottom-line value or stave off disaster: paying off credit cards OK, funding trips to Aruba NOT OK. An illustration: someone ended up in foreclosure because she used the extra monthly cash from a refi to lease a second BMW - she was arguing that the almost $900 a month she was spending on two car payments meant it was impossible to keep up with the mortgage payment now that blah blah blah. She was fortunate that the bank didn't have guidelines, at least right then, for excluding a claim on the grounds of what the crap is wrong with you.
posted by SMPA at 5:28 PM on May 30, 2012 [1 favorite]

I wish we had lived in our house ten to twelve years before we refinanced, instead of only six. Six years is a blink of an eye in home ownership.
posted by BostonTerrier at 5:52 PM on May 30, 2012 [1 favorite]

Response by poster: OK, I asked for hindsight, and I got it.
So for BostonTerrier, looking back, the value of waiting 12 years instead of 6 is clear. But wasn't that wholly determined by what the rates did? Easy to see looking back, but looking forward, can anyone confidently predict they'll be lower 6 years from now?
posted by LonnieK at 6:18 PM on May 30, 2012

We found the fees to vary wildly, like 10x wildly. We finally went with a small Savings and Loan, who only charged $900 in fees, including the appraisal. We also saved about $300/mo in mortgage payments. Check out smaller banks, and credit unions, but be aware that you might have to pay your own insurance and taxes, if they don't do escrow.
posted by lobstah at 6:39 PM on May 30, 2012

Start with your current lender and see if they'll give you a lower rate for a point or less. This saves you a huge amount in upfront fees which may make it a better option than going with an entirely new lender. It doesn't always work, but it's worth a try.

Also, see the Mortgage Professor, and read everything he posts. It's very good information.
posted by Capri at 7:10 PM on May 30, 2012

When you're comparing offers and such, don't forget to check into the reputation of the mortgage servicing. This is effectively who you're going to have to deal with, and man, can it screw you over if they make a mistake. Or a "mistake."
posted by desuetude at 7:21 PM on May 30, 2012

Depending on where you live, you may be giving up some of your state property rights when you refinance a purchase money loan.
posted by iamabot at 7:27 PM on May 30, 2012

I refinanced in January after only six *months* in the house and lowered my rate from 5% to 3.875% with no additional cost. I benefitted from some federal program to help people who were on time with their mortgage payments but at above-market interest rates still qualify for a refinance, but I found the whole process pretty straightforward.
posted by tylerkaraszewski at 8:05 PM on May 30, 2012

Best answer: So many things are good to know.

1. Find a person who you can work with easily. You're going to communicate with this individual regularly for about two weeks (minimum)...make sure he or she has the same goals you do, which are, presumably, to save you as much money as possible, and close the deal. It's impossible to emphasize just how important this point is; there are so many knowledge gaps between people in the industry - even people sitting in cubicles next to each other - that you need to be sure you're working with one who knows what s/he's talking about. The process can be smooth and take ten days, or it can drag out for two months...

2. ...and that can depend on how things go up front. As a borrower of money, it's on you to help the lender of that money to have as much data about you and your situation as possible. So if you find the right person to work with, don't hold back. Did you take out a SBA loan that resulted in a lien on your property? Do you have rental properties? Are you going through a divorce? Why is there a foreclosure on your credit report? These may seem like small potatoes when what most people are after are the best rate and the lowest costs (more on that next), but they're not...I've seen $400,000 deals collapse (like dominos) because no one thought it was important that there was a second mortgage on the property to be refinanced.

3a. If you have solid credit and your property is in good shape, almost any lender is going to want your business. ("Lender," in this case, is a bank like Wells Fargo or a direct lender like Quicken.) Most companies that lend money for refis make money by selling their loans in large packages to banks...and the more attractive the packages, the more money the company can sell them for. The best packages are the ones with large loan amounts and minimal risk of default (i.e., good collateral and good credit). Why does this matter to you? Because it gives you negotiation power. If your loan is something the lender knows will be attractive to a buyer, they're going to bend over backward to get your loan into that package...i.e., they're going to give you a great interest rate. Let's say the market rate (par) for a 30-year fixed mortgage that day is 4.125%. You call up XYZ Mortgage with your 760 credit score and $325,000 loan you want refinanced...you're a nice catch (admittedly, depending on the market...I am guessing $325K is not exactly large living in, say, San Francisco). The lender's going to want you. Tell them you have a 3.875% from your current lender. See if they'll beat it. They probably will. They want your business.

3b. The opposite of 3a is true as well...if you're a credit risk and your house is in a Vegas exurb with foreclosures dotting the landscape...you don't have a lot of negotiating power.

4. Costs vary from lender to lender, and despite the government's best efforts, it's almost impossible to know exactly what you're paying until you get to the closing table. (Even then, a lot of the line items can be bizarre...hello, Aggregate Accounting Adjustment.) Hence, back to #1...find a person who you can work with easily, because you need that person to shoot you straight. A lot of your costs are fixed...appraisal, credit report, state/city/county taxes...but a lot aren't. $40 for a courier fee isn't really necessary. And the $900 "origination fee?" Ask about that one.

5. Most lenders will lock an interest rate for you for 45 days. This is, in theory, more than enough time to get a refi done from beginning to end. But again, you have to help it along. If you have an extenuating circumstance, some lenders will lock for 60 days, but they'll charge you a bit to do so. There are 30-day locks as well that end up giving you money back (i.e., subtracted from your costs), but everyone involved needs to be really on their game, and there needs to be no surprises, to make that work.

Good luck.
posted by st starseed at 8:11 PM on May 30, 2012 [2 favorites]

If you can, join a credit union.

On average this will be a more humane experience.
posted by Danf at 8:33 PM on May 30, 2012 [1 favorite]

I didn't realize that it restarted the origination date of our loan. Making us not eligible for Make Home Affordable plan. Only houses bought before 2009 qualifies, we refinanced in 2010, but we bought it in 2006!
posted by udon at 9:21 PM on May 30, 2012

The biggest thing to remember is that for you, this is probably your Biggest Deal of the Year. A refi is a huge amount of paperwork and hassle and can represent a lot of stress leading to a possible amount of lifestyle-changing savings. An extra 300$ a month in your family's pocket can mean more savings, a vacation, not worrying about the budget as much, etc. It's a Big Deal.

For the lender, though, it's just Thursday.

We're in the middle of our own refi right now (yay, appraisal says house is worth more than we bought it for!) and we sometimes struggle to remember that. So even when we are not scrambling to get paperwork together or rushing home to wait for an appraiser, we're thinking about our refi. Our lender, when not working on it, is not. He's just working through his inbox.
posted by robocop is bleeding at 4:58 AM on May 31, 2012 [1 favorite]

I've re-fied a bazillion times! I think what throws most people is that you have to do the math to see if it makes sense. Each time you re-fi, there are costs, you have to weigh those costs carefully against what the benefit will be.

When times were great, we used our house as our personal lottery. Yay! It's worth another $25K, let's re-fi. Now, most folks re-fi to take advantage of a lower interest rate.

We're at 5% right now, which is respectible, but not optimal. BUT, it won't make sense for us to re-fi again because where we are on the amoritization table, what the house is actually worth (far, far less than the note) and the upfront costs of the deal just don't work out for us.

It also matters what kind of loan you're getting into. We have an FHA, which is good because they'll let you re-fi for less, even if you're upside-down on the house. But, there are PMI issues. So there's that.

I would only re-fi if you plan on staying in the house another 5-10 years at least, if the difference in the mortgage payment will pay-back the costs associated with the re-fi within 18 months and if the PMI doesn't change materially.
posted by Ruthless Bunny at 6:46 AM on May 31, 2012 [1 favorite]

The bank person will tell you, "Oh, it is easy! You'll just spend a few minutes on the phone with me and I'll take care of the rest. It won't take much time at all!"

And that is a lie. Every. Single. Time.

Prepare to invest a significant amount of time into this endeavor.
posted by spilon at 9:19 AM on May 31, 2012

Keep asking to not pay any fees. We just refinanced and are saving about $400 a month.

At first, we were supposed to pay $5K in closing costs. I kept arguing and saying it wouldn't be worth our time and the bank ended up giving us a $1,000 credit so we both paid no closing costs and were able to pay $1,000 off of our principal.
posted by JuliaKM at 11:30 AM on May 31, 2012

JuliaKM, what that from your current lender? Fees for quotes from our current lender aren't outrageous, but from other lenders it is something like $5K (for less than $100K loan)
posted by tayknight at 1:17 PM on May 31, 2012

I'm not sure when you first bought your house, but if you bought it before the "crash" be prepared for the refinance process to be a lot more rigorous. One example comes to mind, after handing over a recent checking statement I had to write a letter explaining all withdrawals and deposits that were made (over a certain amount) and what they were for and to who. By itself not a big deal, but on top of all the other paperwork being done, it felt like a major pain.

My one piece of advice is after sending in your first round of paperwork try not to do anything notable from a financial perspective such as open or close a new credit account or do anything that might trigger a credit check in other areas. The pendulum has swung the other way and lenders/mortgage servicing companies are paying very close attention to the details and very antsy. This is ultimately not a bad thing for the health of the economy, but it does create a headache.
posted by jeremias at 6:27 PM on May 31, 2012

Response by poster: @Capri >> see if they'll give you a lower rate for a point or less. This saves you a huge amount in upfront fees ..
Do you mean see if they'll lower our rate if we pay a point, i.e., X% up front? How will that lower upfront fees? Sorry to be dense.

@ iamabot ... I will def look into this. Like what rights do you lose in some states?

Thanks so much to all -- we're about a light year of where we were before our post.
posted by LonnieK at 6:29 PM on May 31, 2012

LonnieK: Sorry for the late reply. Our loan was with our current lender.
posted by JuliaKM at 5:07 PM on July 19, 2012

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