Refinance question. Am I getting screwed?

The short version:

We received a quote to refinance our house from a company that starts with the letters USAA. Our current loan has a ridiculous interest rate (nearly 6%) and our refinanced rate was going to be much lower 3.35% (long story. The short version is we got dinged with a high interest rate because we were living overseas at the time).

Originally we were quoted $8000 in fees to refinance (that's $4000 to use VA benefits, and $4000 from the bank). It's a hard pill to swallow but we figure we'll roll it in to our mortgage.

Except now we're being dinged with $4000 more bringing our total to nearly $12,000 If we do this, we'll actually be in to the house MORE than we were the day we moved in (by about $4000, go figure)

This cant be right. So I look over the documents.

The biggest difference I can see is property tax +$2054, (plus a few other state fees and estimation differences making up the rest of the total)

Our property tax is supposed to be rolled into our house payment. So now I'm confused, am I getting screwed? How could their estimate be off by 50%?

Go to different lenders. That is ridiculous.

If you are dealing with a company that starts with USAA, from my personal experience, YOU ARE GETTING SCREWED. I suggest looking for a second quote.

I would personally avoid any company that started with USAA or BOA.

When you refi, the escrow account may be added in at the beginning. The old one may have a return for you of the existing escrow account.

That sounds awfully high for fees. I am looking at refinancing now and the fees I was quoted off the bat are $5,512 on a $315k balance mortgage. I'm not comfortable with that; I certainly wouldn't be paying $8-$12k.

That said, if the "settlement charges" include property taxes keep in mind that is something you'll pay anyway - either now or down the road. But! It shouldn't need property taxes to be paid. When there's a change in ownership you have to pay property taxes to current which can accelerate the payment. But a refinance doesn't count as a change in ownership for tax reasons, at least in Ohio.

I would talk to a different bank, get a quote on fees, and use that as leverage. The bank wants their fees but they also want that loan.

I did a quick Google search on "low fee refinance" and US Bank offers a no closing cost refinance. I'm sure there are other low or no fee options.

Google search

Duly noted. (and thanks for the link)

Unfortunate really, I had a positive opinion of USAA up until now

Check with your current lender. My guess is that it costs a lot less if there is only one bank involved, and that bank is already the lienholder on the property. Mine (US bank) keeps sending me refinance options in the mail and they are giving 'promotional' $0-500 fee - and no inspection - refinances or something silly like that. They are also looking to sneakily extend the term of the mortgage, so even though it is bringing my minimum monthly payment down, they would receive more in the long run.

Only reason I don't do it is because I don't owe much on my house and plan to pay it all the way off in the next year or so, and the interest rate difference isn't enough to matter for all the hassle (I was NOT keen on their process of getting the house loan in the first place, and shudder to think about doing that again with US bank).

USAA is my current lender, unfortunately

Last time I went in, there were no fees and I got 2.49%. That's in Canadian funny money, though.

Really, we were just refinancing to get a lower interest rate (which in turn, would lower our monthly payment).

When we took out the loan we were living overseas and since I didn't have a job here yet, we had to classify our place as an "investment property" thus netting the higher interest rate. Now that we've been here a couple years we were hoping to get it knocked down.

So what happens when I tell these guys they can take their final disclosure and shove it? Am I going to be hit with all sorts of fees in a last ditch attempt to get me to sign on the dotted line?

You might start at Dave Ramsey's site:
http://www.daveramsey.com/blog/refinance-the-right-way/

Also look at regional banks in your area.

I wanted to ReFi with BOA. The rate they were giving me was slightly under their current rate and way over what others were advertising. The guy I was talking to actually said: "And with this, you will break even in 5 years. You know they say that if you break even in 5 years, it's a good deal and you should do it." Man, I almost burst out laughing.

I'd go elsewhere to refinance. I've had great experiences with USAA for banking (checking, savings, investment) but their mortgage branch sucks. Nobody in my family has had good experiences with them.

Yeah I refi'ed last year and the fees were ~2k IIRC. Definitely look somewhere else

There is a famous quote: "Once you have the money, never give it back!" You're pretty much asking USAA to take less money on a refinance. They're trying to get that money back in fees.

As noted, you'll probably have better luck elsewhere. Maybe a local bank or credit union is the way to go.

My BoA mortgage has been great - a low rate, and fees were reasonable when we refinanced in 2010. I hear people complain about them but both my mortgage and CC are through BoA and both have great terms and service.

"Closing costs include services such as the loan origination, appraisal and title search fees and title insurance premiums. According to Bankrate's most recent Closing Costs Survey, the origination and third-party fees on a $200,000 mortgage cost an average of $1,847 in 2015."

$12,000 in fees is a gravy train for your mortgage lender and is NOT something I'd sign for.

In reply to Hungary Bill:

We financed our new place through Quicken Loans and were very happy with the process, and the service so far. They're also great with VA loans. Mike Yaldoo was our rep and was very laid-back & easy to deal with: 800-226-6308 x 82002

I'd refinance to a 15-year note. You'll get an even lower interest rate than a 30, and your payment won't go up much at all because of the lower interest.

And you pay off the house in 15 more years, instead of 30 more.

What's the term on your current loan? I looked at refinancing again to save 1% and with about 8 years left, it just wasn't worth it. I also checked with our current lender, a local bank, about modification to get a lower rate. Even that just didn't pay back the closing costs. I second the local bank or quicken loans option and do exactly what you are doing - question how much it costs and why. I think you'll do much better with a local bank. If you only have a few years left on the loan, you've already paid the vast majority of the interest on the whole note.

edited to add we have 8 years left on a 15 year mortgage. Several years ago we refinanced 80/20 mortgages, with the 80 being a 30 year term, into one 15 year mortgage and paid just a bit more per month.

I just refinanced to 2.875% on a 15yr fixed with a total closing cost of $300. Hunt for a local lender focused on refinancing. Those rates are awful.

In reply to 84FSP:

Who did you refinance with? I'm refinance shopping right now in Ohio. Thanks!

YMMV but USAA came up with really high fees in the estimate the last time I refinanced. It was bad enough that I shopped around. When the actual closing came up, the fees were right in line with the estimates I got from my local credit union. I can't recall the exact reason, unfortunately, although Dr Hess's comment about escrow sounds familiar.

I've been very pleased with USAA in both insurance and banking.

EDIT: note that percentage-based fees should be tax deductible.

I used these guys as have a bunch of my friends and family. They have been really good to work with. I rarely say such things about banks.
Guardian Savings Bank Side note - where you at in Ohio? I'm down in Cincy but would love to catch up some time.

I think we have 27 years left if we make minimums (which we dont). We're looking to sell the house in about 10 years.

US Bank and Quicken are both rated extremely high as far as mortgages go, I'll be giving them a call. We also bank with another credit union so I'll be giving them a call as well.

Thanks everyone!

(side note: we're out of the USAA refinance with no fees. shwew!)

See if you can get a referral for a mortgage broker in your area. Yeah, I know, use the word "broker" and people freak out that middleman fees are going to kill them. That isn't necessarily the case. Brokers will usually have several lenders they work with and can offer a lot of different options. Sure, they get a slice, but they will deal with high-volume lenders that can offer better rates and lower fees versus a local bank.

Good on you for reading the disclosure carefully!

I've been a life-long USAA customer and a brand cheerleader for insurance and banking. However, their mortgage operation has been screwed up for years. I'm disappointed that they still haven't fixed it.

I didn't realize its a refi trying to save money. Up here, we can't lock in terms for much more than 5 years. If I were to go in halfway through the 5 years, I'd expect to be charged fees that would cover the banks loss.

Brokers can be a good deal. Generally free to the buyers, the banks basically give them a kickback for sending business their way.