Talk to me about house refinancing

[Teenytoona]

DH is constantly talking about refi-ing the house, and seems to think it's a cakewalk. Me, I keep thinking there are assessments, fees, etc etc to consider atop of the usual selling your soul for a loan stuff.

What is it like? Are there upfront fees? Do I need an assessment of the house? I can't think of the other questions, of course. But if you've done it recently, what things did you have to do?

[bananahands]

Yes, there are fees, but they vary by state and the type of mortgage you have. There is an assessment (appraisal), that's done by the bank and included in the fees you'll pay. We've been looking at refinancing, but the problem for us is that our house value has gone down so much that we may no longer hold 20% equity, which means we would suddenly be required to also purchase PMI. So in the end, a lower rate would not translate to monthly savings because we're not planning on being in the house long enough to recoup the difference.

Pick a few banks or credit unions and give them a call. They can run the numbers with you over the phone so you can find out whether it's worth it for you.

[ASusan]

We got a VERY low rate and very few fees (appraisal was one fee that we did not avoid) by going with a 15-year refinance. It makes our monthly payments go up, but our rate is something like 3.5%.

Doing a 20-yr (or more) resulted in $5,000-9,000 more in fees, let alone what the additional we would pay because of higher rate/longer time to pay.

[cschick]

Originally Posted by bananahands

Yes, there are fees, but they vary by state and the type of mortgage you have. There is an assessment (appraisal), that's done by the bank and included in the fees you'll pay. We've been looking at refinancing, but the problem for us is that our house value has gone down so much that we may no longer hold 20% equity, which means we would suddenly be required to also purchase PMI. So in the end, a lower rate would not translate to monthly savings because we're not planning on being in the house long enough to recoup the difference.

Even if you're under 20% loan-to-value, right now you may not be required to purchase PMI. You might want to talk to a mortgage broker about that and about how you would be able to avoid purchasing it.

If you do not escrow insurance/property taxes ALSO as a result of formerly being at better than 20% equity, that's where you're going to run into trouble. That's basically the reason we have not done a full refinance--we are unwilling to escrow. And since you may be able to get out of PMI right now, it doesn't seem like any bank is willing to let homeowners at under 20% (we're probably at 18% at current market value) both get out of PMI and escrow.

[Teenytoona]

Yeah, I've got some research to do... What exactly is PMI and escrow? Why would you be unwilling to do escrow?

[texmati]

We are in the process of completing a re-fi with the company that our loan is currently with. We are refi from a 15 yr to a 30 year with a lower interest rate.

In all honesty, it took me about 3-4 hrs and 1-2 hrs of my husbands time to shop the mortgages/rates, follow up with the companies, sign/notorize all the papers and mail everything back in. It wasn't bad, and now I feel so much more confident in the SAH option for next year.

[treehuggermama]

My dh has accounting background so he is always on the lookout for ways to save money We just refinanced from a 30 year to a 15 year at an amazing interest rate but you are right their are costs involved and different hoops to jump through. There are closing costs which can be several 1000 dollars and other fees so you have to calculate how long it will take you to recoup that money (which for us was only a short time) and if you are going to stay in the house long enough for it to be worth the trouble (we move a lot). And it seems that most banks and CU's here do require a home appraisal/assessment of value which fell into our "fees". We dealt with a CU for the first time ever for a mortgage and they have been awesome only they wouldn't let us get out of escrow (our last bank did and it was nice!). Good luck!!

[texmati]

Originally Posted by Teenytoona

Yeah, I've got some research to do... What exactly is PMI and escrow? Why would you be unwilling to do escrow?

PMI == mortgage insurance. If the mortgage company decides that you don't have enough skin in the game (mostly about 20% of the home value), then they'll require you to pay an insurance company to insure the mortgage. If you default on the loan, than the insurance company will reimburse the bank for your loan amount. PP may not have wanted to do this, because it would have increased the monthly cost of the mortgage.

Escrow== to me, means money held for safe keeping by a third party. In this case, some banks require you to pay a them certain amount monthly towards taxes and insurance for that year. Then they use that money to make the once yearly tax and insurance payment. They do this to ensure that taxes and insurance are paid on the property.

The problem with this is that it increases your monthly payment, and ties up money that could be earning interest. And I've heard soooo many stories of the bank forgetting to pay, or loosing the papers etc and causing lots of issues. The monthly payments are estimated, so theres always either a shortfall or surplus that has to be dealt with when the tax comes due.

[texmati]

I came across this page a few days ago. the info seems pretty accurate, if not a little cynical. You can see he has an entry for 'escrow abuse'.

[JElaineB]

We're refinancing right now. The rates are great, we are going from a 30 year mortgage (with about 27.5 years left on it) to a 20 year mortgage and will be paying just about the same amount each month. There will be closing costs involved, I am not sure yet if we will roll them into the loan or pay outright, but we do have the cash to do so if necessary. In our case the 20 year loan is not going to cost more in closing costs than a 15 or 30 year loan would be. Escrow is kind of weird -will have to pay quite a bit for the escrow account for the new loan, but then will be refunded the amount that is sitting in the old loan. We are hoping to drop PMI as we think our home has gone up in value enough so we will have 20% in the house. We had to send in a lot of paperwork - 2 years of W-2's, 2 months bank/investment/retirement statements, 1 month paychecks, name of insurance agent, a form that says they can get a tax return transcript for the past two years. It probably has taken about 3 hours total to do the application, disclosure and gather the paperwork. The bank is scheduling the appraisal and taking care of pretty much everything else at this point.

[changingseasons]

If you happen to have a FHA loan, then it is pretty much a cakewalk. The only requirement is that the refinance has to lower your payment by at least 5%. But there are NO fees (banks/brokers make money off the points; they can't charge you any closing costs though), and you're automatically qualified if you still have employment and you haven't completely trashed your credit (but it's not score-based.) Since rates are so low right now, we're doing it, even though we just bought the house last summer! Rates are just low enough that it will lower our payment by exactly 5%. Really exciting for us, since there are no costs involved. It really blew my mind. Literally no costs, and we get our interest rate (and monthly payment) permanently lowered.

Oh- it's called a FHA Streamline refinance if you need that info.