Refi Considerations

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Refi Considerations

Postby Middle » Wed May 22, 2013 1:07 pm

I just want to make sure I'm considering all the right points as I mull over some options.

I made an interest only loan of $43k which I am expecting to be paid off in full in the near future. I have been using the loan repayments to help offset my own mortgage. I currently am about 3 years into a 15yr mortgage loan at 3.75%. I see the following options:

1) Re-amoritize my existing loan. I called to ask about this but between the fee and the paltry reduction in monthly payment this has been easily ruled out as a possibility.

2) Refi to a new 15 yr. I called Provident (my existing lender) and they quoted me 3% with closing costs of roughly $2200 (savings would pay this off in 9 mo.) I do think we will be in this house for a long time, and the lower payment is attractive but I would not be thrilled with extending the time frame out of when I would be free of a mortgage.

3) Put this money in laddered CDs and slowly use this money to continue to offset my current mortgage as I had been accustomed. I had been receiving $272/mo which would last for the remainder of my loan term with a little bit left over. This is a risk free option.

4) Take on a little more risk by investing the $43k in some combination of equities/bonds/I bonds/CDs (listed in increasing allocations).

5) I doubt I would go this route, but I have been tempted by peer to peer lending in the past. Even with some assumed default rates, the interest earned is pretty good, but certainly an option with risks.

6) Just for the sake of putting more down, I could also throw the whole chunk onto the mortgage and reduce the length of the loan. However, as I tried to point out above, my current cash flow cannot comfortably handle my current full mortgage payment without reducing my 401k contributions which I am maxing out. Although now that I write this, if i consider it a 3.75% bond and adjust my asset contributions accordingly, this is not one to necessarily rule out immediately.

Appreciate any thoughts and will check back to provide any missing info.
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Re: Refi Considerations

Postby G-Money » Wed May 22, 2013 1:23 pm

What about checking other lenders to see if you can get a lower rate on a 15-year? Check Amerisave, Aimloan, NMA, Firstib, local banks and credit unions, etc. Would be surprised if you couldn't do better than Provident's quote (although Provident usually has competitive rates).

You could also use the $43K to pay down the mortgage and see if you can get a more competitive rate with manageable payments on a 10-year loan.
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Re: Refi Considerations

Postby Middle » Wed May 22, 2013 3:58 pm

Yes, I might be able to do a little bit better on the refi rate, but I didn't want to get too detailed on the rates as it might be another month or so before I could actually do anything. I did a quick check with Amerisave and the 15 yr rate was not as good as Provident, though very close.

And I did look into the 10 yr option which Provident quoted me a 2.875% rate with $2,200 cost. Payment would be slightly higher than what I'm doing now.
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Re: Refi Considerations

Postby Van-Guard23 » Wed May 22, 2013 5:01 pm

FWIW, I am in the process of refinancing to a15-year fixed and got 2.5% with 0 points thru Mortgage Capital Associates. Might be worth a look
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Re: Refi Considerations

Postby Middle » Wed May 22, 2013 5:07 pm

I think maybe rates might have gone up slightly since you started your refi, I just checked their website and they are showing 2.75% with 0 points. The 3% I was quoted was actually -1 points.
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Re: Refi Considerations

Postby buckstar » Wed May 22, 2013 7:32 pm

I just started a refi with Cashcall 2.5% 15 year, no closing costs. Might want to try them
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Re: Refi Considerations

Postby letsgobobby » Wed May 22, 2013 8:52 pm

You can refi to a new 15 year for the lower rate then continue to pay off the loan on your current schedule,ie, make additional payments to principal. Then you won't be extending your loan.

Obviously investing in a CD ladder is a guaranteed loss for now, so that doesn't seem like a good idea unless you really need the liquidity.

A diversified investment portfolio will have a higher expected return than 3%. Whether that expectation materializes or not is unknown.

I am refinancing to a 30 year 3.25 so obviously I prefer the longer loan and expect my investment returns will exceed the costs of borrowing money.
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Re: Refi Considerations

Postby Buffetologist » Wed May 22, 2013 10:50 pm

Amerisave paid me to refinance on my last mortgage. I'm at 2.75 on a 10 year. The lender credit was so high, it exceeded the closing costs, and they dumped the rest into my escrow. I got back an equivalent amount from my previous lender, so basically they paid me to refinance.

I've used them twice in the last 3 years, and National Mortgage Alliance twice. Went from 4.875 to 4.0 to 3.5 to 2.75 since 2010.

I don't understand why anybody would do anything different. They are PAYING you to refinance!
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Re: Refi Considerations

Postby Oilburner » Thu May 23, 2013 6:43 am

I imagine the "2,200 in closing costs" are the lender-only fees. You will also have city/county tax stamps/recording fees, the appraisal, title/settlement agent, title insurance (a policy re-issue is best) and some misc. fees. And you'll have the prepaids for your new escrow account.

My wife and I are going through the same thing and the interest rates are close to yours (current 15-year loan gotten in 2011 at 3.5% and we are locked at 2.625% on another 15 year refinance loan). For our loan of $174,000 the Good Faith Estimate came in at a little over $5000 in closing costs. About $2000 was for the escrow. The only reason we are refinancing (and economically it almost makes no difference if we do or not) is to shorten our mortgage by about 3 months while keeping the payment the same. We pay an extra $150 in principle each month on the current mortgage, but on the new mortgage will pay about $225 in extra principle each month, but the payment will be the same since the new loan has a lower p and I amounts.

So for you, if cash is tight, I would strongly consider not refinancing. I am all for maxing out the 401ks over getting the house paid off earlier.

Also, refinancing is a hassle. We have credit scores of 800+ each, $650,000 in retirement accounts, $100,000 liquid assets (stocks), make $200,000/year, our house appraised for two times the applied for refinance, and we have absolutely no debt except for the current mortgage. Guess what? The company we made a loan application with has asked us on five different occasions for the most minute and detailed documentation as to every single aspect of out finances. The biggest hassle is a $2000 "revolving" over draft protection with our bank (which we never use due to high checking account balances) and the loan is not moving forward because we can not locate the contract for the line of credit stating it is unsecured. The bank said so, but the mortgage company needs to see the contract. We are about ready to walk because of this. Just be prepared for a big hassle if you go through with it. Amerisave is the company and we refinanced with them in 2011. It is much worse the second time around.

Buckstar wrote, "I just started a refi with Cashcall 2.5% 15 year, no closing costs. Might want to try them"

I've always wondered about the "no closing cost loans" does this mean no lender costs only, and not the required county/city tax stamps and appraisal fee? Those costs still must be factored in when deciding whether or not to refinance. Or are there lender costs and the other costs associated with refinancing rolled into the loan, so the APR will be higher? We noticed this on the "Truth and lending statement we got from Amerisave (APR was higher than the advertised rate).
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Re: Refi Considerations

Postby Buffetologist » Thu May 23, 2013 9:03 am

I've always wondered about the "no closing cost loans" does this mean no lender costs only, and not the required county/city tax stamps and appraisal fee? Those costs still must be factored in when deciding whether or not to refinance. Or are there lender costs and the other costs associated with refinancing rolled into the loan, so the APR will be higher? We noticed this on the "Truth and lending statement we got from Amerisave (APR was higher than the advertised rate).


Basically, the lender credits from Amerisave can be used for anything on the closing sheet other than the payoff amount and prepaid interest, so the recording fees to record the new mortgage and even the prepaid escrow both count. The recording fee charged by your old lender to discharge your current mortgage are not on the closing sheet; they are in the payoff statement.

That's why these loans are even better than no closing cost loans!
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Re: Refi Considerations

Postby Middle » Thu May 23, 2013 11:33 am

Buffetologist wrote:
I've always wondered about the "no closing cost loans" does this mean no lender costs only, and not the required county/city tax stamps and appraisal fee? Those costs still must be factored in when deciding whether or not to refinance. Or are there lender costs and the other costs associated with refinancing rolled into the loan, so the APR will be higher? We noticed this on the "Truth and lending statement we got from Amerisave (APR was higher than the advertised rate).


Basically, the lender credits from Amerisave can be used for anything on the closing sheet other than the payoff amount and prepaid interest, so the recording fees to record the new mortgage and even the prepaid escrow both count. The recording fee charged by your old lender to discharge your current mortgage are not on the closing sheet; they are in the payoff statement.

That's why these loans are even better than no closing cost loans!


But there is no free lunch, so they may be paying your closing costs but making up for it on the mortgage rate. That's how it works. I could refi to 2.5 percent but have to pay points up front (according to today's rates). You just have to pencil out where the sweet spot is between opportunity cost of cash used today vs. gauranteed rate reduction over your estimated time with the loan.

Although I think rates are currently on a slow rise up. Back in 2010 when my veteran loan rep processed my 15 yr refi at 3.75%, he was stunned and said "I've never processed a rate so low". Comparatively, it doesn't look as great now, but as we all know things can change and will.
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Re: Refi Considerations

Postby Buffetologist » Thu May 23, 2013 11:53 am

But surely you can beat 3.75% and be actually be paid to do it.

Whether it's worth lowering it even further by paying closing costs or points is a whole different issue entirely. I'm saying there is no reason on earth to keep paying 3.75%.

I never pay points or closing because I'm a habitual refinancer and paying these things effectively dilutes the value of my option to prepay.

I expect to pay off my mortgage when my Ally CDs that are paying more than my mortgage mature if I can't reinvest them at a higher rate than my mortgage. At that point, I expect that my own mortgage might be the best fixed income investment I can find.
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Re: Refi Considerations

Postby Van-Guard23 » Thu May 23, 2013 1:17 pm

Middle wrote:I think maybe rates might have gone up slightly since you started your refi, I just checked their website and they are showing 2.75% with 0 points. The 3% I was quoted was actually -1 points.


Middle,
I appears you are right...the rates have risen slightly. Good thing I pulled the trigger when I did...small window of opportunity. Luck favors the bold!

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Re: Refi Considerations

Postby Middle » Thu May 23, 2013 6:45 pm

I just took a look at CashCall Mortgage and they do seem to be more competitive than Provident. However, their website looks like they could easily be featured on a late night infomercial station. Any reason not to go with one of these lessor known lenders like CashCall or Amerisave, etc.?
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Re: Refi Considerations

Postby buckstar » Thu May 23, 2013 9:28 pm

I was a little worried about Cashcall as well, given the name and association with Gary Coleman :happy , but they've been very professional to date. They way I figure is that they are loaning me money, so I don't really have anything at risk.
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