Refinancing Expertise?

[+ Lucky]

I am planning to refinance. So far, I have 3 quotes. The interest rates are about the same, but where I get confused is the different ways that costs are set out. The loan costs often include prepayments that I don't quite understand. Because it is all automated, I am dealing with a computer rather than a person.

On my current loan, all closing costs were paid by the lender. I don't see that offered anymore. What I do see are so many choices that they all begin to blur together. Advice, please!

[Mjonis]

I thought (but maybe it's only in New York vs. Federal law) that closing costs are to be laid out crystal clear. You're supposed to get a good faith estimate of closing costs. Now, some people will choose to roll those into the loan (thus increasing the amount borrowed which may affect the APR). More or less the lender is required to list the Interest Rate and APR. The 'closer' the two numbers are, basically the lower the closing costs/fees. (a lot of lenders will fold the costs into the loan, thus the APR vs. interest rate will be more "different").

 

Example:

30 year fixed for say: 3.0% and APR of 3.5% Wait, what? Yeah, then you see they charge like $7,000 in closing costs, folding it into the loan, thus the "APR" is increased vs. the interest rate.

 

There's many loan finance recalculators. If you're doing straight refinance (not cash-out where you borrow more money), it's fairly easy. You obviously know what your current mortgage balance is, along with current interest rate and current monthly payment. ASSUMING you're "straight refinance", the new loan amount will basically be your "current" mortgage balance. You know what the new interest rate is (not APR). You plug those numbers in and get a new monthly payment.

 

Then you *should* have received a good faith estimate for closing costs. Basically the rule of thumb is if the new monthly mortgage payment savings (ie your new monthly payment would drop by say, $125/month) multiply that by 12 (or 18). IF the closing costs are less than that number, you're "ok" (ie, you "pay off" the closing costs by what you're saving in a short time period), then it's a good deal.

 

But let's say it would take you 2-5 years to make up the closing cost difference, then it's not such a good idea (again general rule of thumb).

 

Also, don't make the mistake I did many many times which is keep refinancing at 30 years. I must've refied like 4 times in the 1st 10 years (always lower interest rate) but then I'm at like 40 years to pay off the loan (every time you refinance for 30 years it's 30 MORE years). I since learned my less and about 8 years ago, I refinance with local bank at "current" loan length. ie: I was 2 years into the 30 year mortgage, so 28 years left. Refinanced at lower rate for 28 years. Refinanced again recently at a 22 year loan (lower rate). So now I'm at a "30-year" (22 years really) at 3% (I live in NY so our rates are always a little higher than other states). Closing costs were $1500 and I'm saving $100/month so 15 months I make up the difference. Plus it'll be paid off before I retire.

 

Sorry for the babbling, but hope this helps?

 

Nothing wrong necessarily with folding in the closing costs into the loan. Just that the best way to compare "true" costs with various lenders is to keep the loan amounts the SAME and look at the closing costs and see how long it'll take you to pay off. We have some lenders here where if I'd refinanced with a different bank, my closing costs would be $4800. Big difference, IMO.

[+ Vegas_Millennial]

Unless you can find or create your own mortgage refinance spreadsheet, ask a human with the company to give you a quote for a loan with the exact same number of years remaining as your existing loan, and the upfront costs absorbed into the loan amount. Then you can see how much lower the monthly payment will be, with no out of pocket costs now.

 

Or let's say you have 22 years left on the existing loan, ask for a quote for a 20 loan with the costs rolled into the new loan. If you can shave 2 years off the time frame of the loan without increasing your monthly payment, it's a no brainier good deal. I did that several years ago, refinancing from a 4.65% with 18 years remaining down to 3.125% with a 15 year term. There were no out of pocket costs to me because they were rolled into a higher loan amount, and my monthly payment stayed about the same. I simply am on track to pay off the loan 3 years sooner.

 

Last week I evaluated refinancing again. I currently have 8 years left on my loan with 3.125%. Even though I can get rates as low as 2.0% right now, my time frame of 8 years is so short that when the costs are included in the new price of a refinanced loan, my monthly payment would actually go up a few dollars a month to pay for the costs added to the loan. Therefore, the refinance does not make sense for my situation now.

[+ Lucky]

Thanks for the advice. It does seem as if closing costs are all over the place.

[ceej]

You may also want to check on refinancing with your existing lender. They may offer a better deal on closing costs (even very low or none). As others have said, be careful when resetting the term. Even though your payment may go down by restarting a new 30 year loan, you'll pay more in interest in the long run. Also, make sure you understand what will happen to your payment with a loan with a shorter initial term (such as 20 years, etc).

 

Ultimately, you want to understand how much you would pay going forward on your existing loan in interest versus what you'd pay on the new one in interest (plus costs). What you've paid in the past isn't necessarily relevant, since it's already done.

[ceej]

Also...it may go without saying, but if you're considering an adjustable rate, make sure you fully understand the mechanics of that loan (when it resets, how much it can change, how often it changes, etc). If you're going to be in the place for the foreseeable future, i can't see a reason to do an adjustable rate given where rates are these days, but I've seen people get into adjustable rates without really understanding what to expect.

[+ Lucky]

I am now comparing estimates from Quicken Loans, Better.com, and AmeriSave. Quicken is the highest price, better.com has the highest closing costs, leaving AmeriSave as the likely winner. Their closing costs are lower than better.com by almost $8000. It's hard to figure why they are so low. I don't think they include the prepaid interest and the like, but why not? In 2014, AmeriSave was in litigation over fraudulent enticement and bait and switch. Geez.

[+ Lucky]

AmeriSave does not include the prepaids, making their offer worse.

Quicken has lower numbers today than yesterday. I am thinking of going with them.

[ceej]

AmeriSave does not include the prepaids, making their offer worse.

Quicken has lower numbers today than yesterday. I am thinking of going with them.

I found this page on Lending Tree which I found to be useful. https://www.lendingtree.com/home/refinance/mortgage-refinance-closing-costs/

 

I have to say, my eyebrows were raised when you started talking about differences in cost of $8,000 when the high end of the average refi costs for the nation is around $5800. Some of that may have to do with required real estate tax/escrow balances (which aren't really closing costs) or points to pay down the rate. Of course, if you have a jumbo/large loan, the underwriting fee may vary quite a bit.

 

If you scroll own on the page I linked to above, there are some helpful hints as well as a list of typical costs and what you should expect to pay.

 

Strangely enough, the last time I got a new mortgage (2013), I actually went through Costco! With the membership, they had a Lending Tree type arrangement where you could see many lenders and their offers. In fact, I think I spent an extra $50 for a higher membership and got an even better deal. Seems strange, but it was basically just a portal to lenders, and worked out very well.

[+ Lucky]

Part of the problem is that there are too many options. I have started the process with Rocket Mortgage but will take a look at the Costco site.

Thanks for the link @ceej .

[ceej]

Part of the problem is that there are too many options. I have started the process with Rocket Mortgage but will take a look at the Costco site.

Thanks for the link @ceej .

There are. The benefit of the Costco site (with membership) was that it essentially made offers from different lenders based on your inputs, that included rates, points, and closing costs. I believe lending tree works the same.it can be a good compare/contrast tool. Good luck!

[+ Lucky]

So I went to the Costco site. I am an executive member. Mutual of Omaha had the same terms as Rocket Mortgage, but the lender costs were capped at $250 plus appraisal fee...good, huh?

And then this:

 

* Estimated Total Fees is a combination of lender fees including application, commitment and processing fees, as well as other third party fees such as appraisal, flood certification, credit report, etc. Due to the complexity of state by state charges, this does not include title, escrow, transfer tax, or recording fees. Lender fees are not to exceed $250 per transaction for Costco Executive Members, and $550 for Gold Star and Business Members

 

Payment estimates shown do not include taxes or insurance and will be higher once included.

 

The fees represented are not all inclusive – additional closing fees may be incurred upon approval of your loan application. A full quote of all fees and charges specific to your situation will be provided by the lender in the form of the Loan Estimate.

***

So it's not at all clear.

[ceej]

So I went to the Costco site. I am an executive member. Mutual of Omaha had the same terms as Rocket Mortgage, but the lender costs were capped at $250 plus appraisal fee...good, huh?

And then this:

 

* Estimated Total Fees is a combination of lender fees including application, commitment and processing fees, as well as other third party fees such as appraisal, flood certification, credit report, etc. Due to the complexity of state by state charges, this does not include title, escrow, transfer tax, or recording fees. Lender fees are not to exceed $250 per transaction for Costco Executive Members, and $550 for Gold Star and Business Members

 

Payment estimates shown do not include taxes or insurance and will be higher once included.

 

The fees represented are not all inclusive – additional closing fees may be incurred upon approval of your loan application. A full quote of all fees and charges specific to your situation will be provided by the lender in the form of the Loan Estimate.

***

So it's not at all clear.

I think the cap on lender costs of $250 is probably a good deal. The other fees should be in line with what is listed on that Lending Tree Link. Items that you have to pay into escrow are things you'd pay anyway and aren't really fees/costs associated with the refi (real estate taxes, possibly homeowners insurance and/or mortgage insurance). If you have a balance in your existing escrow account, that should transfer over or be refunded. There may be other transfer type taxes (but your not changing ownership), but again, that shouldn't be dependent on the lender.

 

As for the last disclaimer, I would assume they would be more situational type expenses, and not assessed by the lender directly, but it should be clear in the estimate before you go too far. I recall getting a similar deal, and I didn't get any surprises in the end.

[+ Lucky]

I think the cap on lender costs of $250 is probably a good deal. The other fees should be in line with what is listed on that Lending Tree Link. Items that you have to pay into escrow are things you'd pay anyway and aren't really fees/costs associated with the refi (real estate taxes, possibly homeowners insurance and/or mortgage insurance). If you have a balance in your existing escrow account, that should transfer over or be refunded. There may be other transfer type taxes (but your not changing ownership), but again, that shouldn't be dependent on the lender.

 

As for the last disclaimer, I would assume they would be more situational type expenses, and not assessed by the lender directly, but it should be clear in the estimate before you go too far. I recall getting a similar deal, and I didn't get any surprises in the end.

Well, I followed through and will be hearing from a lender.

[ceej]

Well, I followed through and will be hearing from a lender.

Good luck...feel free to ask questions or PM. Not really a loan expert, but do work in Finance/Accounting so have a general understanding of this stuff.

 

If you do want to do a comparison when you get more info from your lender, Excel has a mortgage loan calculator template (at least mine does) when you open the program and select "New". If you do it for your existing loan based on its original term and your new loan, you can compare the future interest on your old loan to the total interest + cost on your new loan, and that should tell you if you're better or worse off.

[+ Lucky]

On a whim today I called an old high school friend who lives in San Francisco. In the conversation he mentioned that 7 years ago he used a mortgage broker and was very happy with him. The guy now lives down here. So, I called him, and long story short, he says he can get me a loan with closing costs less than half of what I have going. Whimsy! I'll stop this discussion now, but @ceej, I may have a question for a PM down the line! Thanks to all who contributed.