refi?

You guys are smart: With the coming apocalypse, what are the "rules of thumb" you're adhering to for refis?

We owe $99k after paying for six years on a house we built for $117K. It's carrying about $25K in equity loans, and the places values out (for taxes) at &149K, but probably somewhat higher on market value.

Right now I've got a 30 year fixed at 5.875% and a $75 per month PMI payment. I assume the PMI would be lifted when they see the increased value of the home.

So, sit tight? Find a better deal that lets me put more money in principal?

Before you even suggest it, no, I don't want a 15 year. Too risky. I'd rather have a 30 that I can pay off early because I have extra cash, than a 15 that gives me little flexibility.

Squat? Hogon? Yurt? Ideas?

jg

Refi if you can.

The wife and I have been seriously considering it. We paid $98k for our house 2 years ago at a slightly lower rate.

There is a credit union locally that is offering below 4% on 15 year REFI's with no PMI. I figured our payment would only jump about $150-200/month.

Just haven't decided if I want to drop $3k out of pocket to do so.

Unless you have more value than the tax roles (and that's how it's supposed to be) you may not have enough value to refi.

BUT you should be able to drop your MI with no cost. Your first lien is less than 80% value. They don't count your 2nd in the LTV calcs for MI.

BUT If you have PMI instead of MI it would mean you have an FHA loan instead of a conventional loan and in that case you have a 5 year minimum before the PMI comes off. That's one of the downsides of an FHA loan over a Conventional loan.

Another downside is that FHA PMI is a lot more expensive than Conventional's MI.

BUT the big question is how long will you be living there? It's going to take quite a few years to recover the costs to refi and make a profit. If you've lived there 6 years already then you won't be there long enough to make it worth your while, that is if you are "normal".

Most loans are paid off in 7-9 years.

Many lenders won't really counsel with you and show you the trade offs, the bigger the lender the less likely you are to get someone that actually CAN figure out when it's good and when it's bad.

As a word of warning both BOA and Wells have just been hit with big fines and are sending checks out to customers they've overcharged thru having order takers for L.O.s. I think it was $85 million for Wells and $108 million for BOA.

Credit unions are not exempt from this, as a matter of fact they may be worse in many cases. You do realize that CUs don't use their own funds don't you? And with higher overheads they tend to be more expensive than real mortgage companies.

I rather like the idea of chucking it all and moving into a Yurt.

Do Yurts have garages?

Snowdoggie wrote: I rather like the idea of chucking it all and moving into a Yurt. Do Yurts have garages?

2 Yurts, small one to live in and a BIIIIGGG one for Yurt garage.

You should be able to do much better than you are. Even a no-cost, where they cover closing costs with a higher rate, should be able to beat your current rate.

And I know you said no 15's, but at least look at them. Given your lower principle, the lack of PMI you will have, and the lower rate available with the shorter term, and there's a chance your payment could still go down. Also - 15 and 30 are not the only choices, just the most popular. You can get a loan for any term. I've done a 20 year when I couldn't stretch for the 15, but didn't want the 30. The big advantage of the shorter term is that you get into the meat of the amortization schedule a lot quicker. Instead of only having pain off $18k in 6 years, with a 15 year you would have paid off closer to $40k.

I believe, like carguy has suggested, that you've paid down enough to make your PMI go away by calling your servicer. If not, the one lump sum to get you down to 78% LTV to make PMI go away should be pretty minimal. That call will get you $75 a month back right there. If you do have to make a principal payment to get down to 78%, don't pay more than your baseline scenario - $75 times the number of months of PMI you'd have left until you get to 78% LTV by just making your normal payments.

My employer is quoting 4.625 today - using that as a rough guide, it looks like you'll be getting $90 back a month by refinancing. So if your refinance costs $5000 in closing costs, it'll take 4 and some change years to break even on the refi. How long the breakeven period can become before it becomes a bad deal is something you'll need to decide based on your personal situation.

Make use of the calculators available at bankrate.com - that will help you make a good decision. But as a first step, I would definitely call the servicer and see what it will take to make PMI go away.

In addition to what carguy suggests, I also suggest running the numbers.

I've done numerous worksheets via Excel, and you can easily factor in multiple costs that are important- closing costs, etc. It's not exact, but within a few $$ after 30 years of loan payments.

The numbers are really important.

I recently got rid of my PMI, it felt great. I'm on a biweekly payment plan after my refi two years ago for my 30 year mortgage, so that should drop it to 22 years and save me a bit of money, also.

I also rolled my refi cost right back into the loan and only had a small out of pocket amount.

Ross D the benefit to a biweekly program is that you are making 13 payments a year rather than 12. You can do that on your own and get the same benefit without having to have the auto debit. (see other thread on auto debits)

ONE of the benefits of doing it on your own is that you don't have the high late payment penalty of the bi-weekly. For some reason they tack on a higher late payment fee than normal. Also never pay a fee nor go thru a 3rd party for a bi-weekly loan, it's available for free thru your present lender.

If you have the fortitude to do it on your own you can get the same benefit by doing it on your own and then you can pay the extra whenever you want. One extra principle and interest payment (not a full house payment since it includes tax and insurance) will knock your loan term down to 21 years and some few months.

And JG if you refi and roll the 2nd lien into the refi you would still have MI because that would make your LTV too high. FHA has PMI regardless of your downpayment so you'd have to change to a Conventional loan to get rid of your MI.

Still THE overriding question is how long do you think you will stay in the house. If it's not long enough to make a significant profit from the refit then it won't be worth the hassle.

Just curious, what are the closing costs on a refinance?

The closing costs on a refi are basically the same on a purchase except you might not need an appraisal, survey and you get a discount on your new title policy.

Closing costs, or at least the items that make up the closing costs, are federally mandated. They say you must do this, this & this. The costs for each service (this & this), while not standard or fixed, don't vary significantly.

Closing costs can't vary by more than about $200 between lender to lender, or more accurately, area to area. You get variances like one appraiser charges $400 and another $425. Put together a few of those types of differentials and that's the difference in costs.

What most people don't realize is that a refi is a brand new loan. It's not a reworking of your old loan.

BTW the biggest component to you monthly payment isn't your interest rate, but instead it's your loan amount.

^Around here, at least with the few lenders I've talked to, it's only slightly less than closing costs on the original loan.

CG, on this whole MI/PMI thing: If I understand it correctly, you are paying for the bank's insurance so that if you default, then the bank gets paid for the loan by the MI company. Is that right? If that's the case, then HOW BERKELEYING COME there were all those defaults and the banks didn't collect from the PMI companies? Because it was all really just a scam to suck another hundred bucks a month out of the peons?

Anyway, back to JG's decision. To get rid of the PMI/MI (whatever it was) on my BoA (shiny happy people) loan, I had to get an appraisal that cost me like four bills that showed more equity than 20%. That had a 4 mo payback, so that was well worth it. That extra bill a month can then go to principal. For the ReFi, run the numbers, as has been said, but look at ReFi-ing from yourself. For example, if you're at 6% right now (5.8x with infinity compounding, etc.), and you can get that down to 5%, saving 1% on a $100K loan, or $1K/yr, and your ReFi costs are going to be like 3 large, that's 3 years to break even. That sucks. Instead, dump the mortgage insurance you're paying for the benefit of the bank (or really just the insurance company stealing it from you in collusion with the bank), throw everything you can at the loan, and you can be out of debt on it in 3-5 years. Unless you can get the break even point to 1 year, then it MIGHT be worth it. Of course, when you talk to the ReFi people, they'll tell you "Yeah, a 5 year break even on a ReFi is a GREAT deal. You should go for it." Great deal for them.

All that assumes you want to keep living there.

Timely question - I've been looking at refinancing into a 5/5 ARM through my credit union, just waiting a few weeks to be able to get a couple of other small things paid off. The 5/5 has no closing costs (lender "pays" them all - yes, I'm sure it's figured into the rate) and is at 3.625 for the first 60 months, then goes to prime + 2 points (currently 3.5) with a max adjustment of 2 points every 5 years and 5 points for the life of the loan. Should save me around $200/month (I'm presently at 5.875 like JG). Any thoughts from you experts on this? I will be in this house for at least another 10 years.

carguy123 wrote: The closing costs on a refi are basically the same on a purchase except you might not need an appraisal, survey and you get a discount on your new title policy.

Interesting. We don't have that here. I refinanced about 10 years ago, and there was no cost. There was a penalty, but the bank ate it because we were staying with them.

Dr. Hess wrote: CG, on this whole MI/PMI thing: If I understand it correctly, you are paying for the bank's insurance so that if you default, then the bank gets paid for the loan by the MI company. Is that right? If that's the case, then HOW BERKELEYING COME there were all those defaults and the banks didn't collect from the PMI companies? Because it was all really just a scam to suck another hundred bucks a month out of the peons? ....

Dr. Hess, I've been asking this for the last 5 years. Yes, W!T!F! I should start my own PMI company. You obviously don't need any money to start since all you do is collect and never pay out.

regarding closing costs: We refi'd about half a year ago with NO out of pocket, 15 year, fixed, at 4.0 percent. Our old mortgage was a 30 year at 5.75. If you have stellar credit, you can refi with nothing out of pocket. We used CapCenter, but they only do business in VA and NC.

If you pay thousands in closing costs, you need to consider how long you're likely to stay in the house. Obviously, a short time frame would negate any savings from a lower interest rate.

pigeon wrote: Timely question - I've been looking at refinancing into a 5/5 ARM through my credit union, just waiting a few weeks to be able to get a couple of other small things paid off. The 5/5 has no closing costs (lender "pays" them all - yes, I'm sure it's figured into the rate) and is at 3.625 for the first 60 months, then goes to prime + 2 points (currently 3.5) with a max adjustment of 2 points every 5 years and 5 points for the life of the loan. Should save me around $200/month (I'm presently at 5.875 like JG). Any thoughts from you experts on this? I will be in this house for at least another 10 years.

DON'T!! That is unless you are sure you will be gone in less than 5 years. Staying 10 years means you have 5 years of high costs, so why refi?! You just wasted all those closing costs you paid.

You want to lock yourself into a low rate loan while they are available. If the healthcare bill stays around it guarantees huge interest rates in the forseeable future.

And BTW the 30 year fixed rate mortgage's life is very short. The Too Big To Fail Banks want it to go away. They've got enough money in congress to lobby well for them to replace Frannie. If that should happen there will be no 30 year fixed rate mortgages left so get 'em while you can.

I could write a novel on the changes that will happen if Frannie should disappear or come totally under the Govt.'s thumb but let me just say that virtually every standard thing you know about mortgages came about due to Frannie and will disappear along with Frannie.

The new Consumer Financial Protection Bureau (which is the most inclusive and powerful agency every created by the Government) has as it's new motto "Our mission is clear: No one should be tricked in any financial transaction." That's the exact same reason Fannie was started.

Standard loan paperwork would disappear and you'd have to be careful of every line item in your loan papers. Prepayment penalties, short term ARMS, qualification standards, downpayment standards, loan terms, loan types, cheap money available EVERYWHERE, etc. etc.

Zomby woof wrote:

carguy123 wrote: The closing costs on a refi are basically the same on a purchase except you might not need an appraisal, survey and you get a discount on your new title policy.

Interesting. We don't have that here. I refinanced about 10 years ago, and there was no cost. There was a penalty, but the bank ate it because we were staying with them.

No, they didn't eat them, they hid them into the interest rate! Maybe that was the best thing for you maybe it was the worst, but it's too late to worry about it now.

There is no way to get rid of closing costs, but there are ways to hide them. You can roll it into the loan or the interest rate. Many lenders, especially the bigger ones, don't tell you these things. Actually since most of the larger lenders have hourly wage order takers as loan officers, they don't even know how it's done. They just follow the rate sheets they are given.

Whether I paid it or not, the interest rate was the same. I shopped it to 3 banks. The point is, we don't have to pay closing costs on a refinance like a purchase.

Zomby woof wrote: Whether I paid it or not, the interest rate was the same. I shopped it to 3 banks. The point is, we don't have to pay closing costs on a refinance like a purchase.

The point is that you DID have to pay closing costs. They didn't come out of your pocket at time of closing, they come out of your pocket every month you have the loan. And soon you'll have paid more than if you'd have paid them at closing or rolled them into the loan.

When you roll the closing costs into the rate you are paying extra on the whole loan amount. When you roll the closing costs into the loan amount then you are only paying extra interest on the small amount added to the loan. And if you pay them at closing you pay nothing except the closing costs.

And your problem is that you "shopped it to 3 banks" and didn't use a real mortgage company. They usually have more experienced loan officers who can explain your options and allow you to make an educated choice.

I've got to go to work now, making loans for people, so I won't be near the computer till late tonight if things go as planned.

https://www.facebook.com/pages/Financier-Mortgage-Group/175145092540694

Delete the link if I've overstepped any forum boundaries.

OK, let me tell you the real point.

Our system is a lot different than yours (that's what I suspected, that's why I asked), and you guys are getting screwed even worse than we are. The banks gave us the best deal, that's why we shopped them, and not the brokers, and mortgage companies.

It's a very competitive market here, and most of the fees, charges and interest rates are negotiable. Renewal fees are a good example. After your term is up, there is a fee to renew the mortgage, but nobody actually pays it.

Ah. ZW is a CANADIAN. Different rules, can't compare apples to rape seed.