Dr. Gaius Baltar wrote:Does anyone think that Option 2 is worthwhile?
Dr. Gaius Baltar wrote:Does anybody else think that there's something fishy going on with the appraisal value? How can our home have lost 16% of its value compared to 6 months ago? The appraisal company is even the same.
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I intend to keep this house until 2016 or 2018 before moving.....I'll definitely be out of here by 01/2020.......
jcb3030 wrote:No, right after losing $400 on the appraisal fee I didn't want to risk it again.
Recently I have been giving some thought to trying a new lender. The whole process feels like rolling the dice. Very frustrating.
Recently I have been giving some thought to trying a new lender. The whole process feels like rolling the dice. Very frustrating.
vveat wrote:Can you benefit from the low appraisal by using it to reduce your property taxes? That's what we did in a similar situation earlier this year. First I was very angry about the low value, even though we had enough equity that it didn't hurt us with the loan, I just thought the appraiser did a quick and sloppy job. But then it started me thinking about taxes and we got some lemonade out of this lemon at the rate of $1k less annually.
Not solving your immediate problem with the loan (I would go for option 2 as well), just an extra thought.
Dr. Gaius Baltar wrote:Sadly (happily?) my property taxes assess the house even lower than the lowball appraisal.
Dr. Gaius Baltar wrote:So if in order to get a 2.625% 7/1 ARM with a monthly savings of $386.39 (yearly $4636.68) I have to reduce the mortgage by $36,000, then my rate of return is 4636.68 / 36000 = 12.9%/year. Is that correct?
Dr. Gaius Baltar wrote:What is the correct way of determining this return on investment?
Dr. Gaius Baltar wrote:I'm trying to determine my rate of return on refinancing if I have to pay down the mortgage to get the refinance. Can someone confirm if I have my math correct?
Yearly Mortgage Payment Savings / Amount of money I have to reduce the mortgage to get these savings = rate of return
So if in order to get a 2.625% 7/1 ARM with a monthly savings of $386.39 (yearly $4636.68) I have to reduce the mortgage by $36,000, then my rate of return is 4636.68 / 36000 = 12.9%/year. Is that correct?
Dr. Gaius Baltar wrote:Do mortgage brokers cost anything? Do I have to go in person?
Dr. Gaius Baltar wrote:Does anybody else think that there's something fishy going on with the appraisal value? How can our home have lost 16% of its value compared to 6 months ago? The appraisal company is even the same.
Is it possible that Amerisave is manipulating the appraisal value in order to retain me as their customer on the current 3.75% mortgage? Could they be ordering the appraiser to appraise the home for $425,000? In the past, I've had bad experiences with lenders changing appraisal values in order to either keep me in their current mortgage, or prevent me from going somewhere else. When I had a mortgage with Bank of America, I tried to get them to refinance me to a lower rate than 5.25%, and they insisted over the phone that the appraisal would come out to only $350,000. When an appraiser selected by Bank of America came to appraise the property for a prospective refinance, lo and behold, they appraised it for $350,000. When I then went with US Bank to refinance to 4.25%, their appraiser appraised it for $490,000.
Do lenders give you high appraisals to gain you as a customer, and then low appraisals if you want to refinance with them, in order to restrict you from doing so?
tfb wrote:Dr. Gaius Baltar wrote:Does anyone think that Option 2 is worthwhile?
Yes, absolutely. The return on the $36,000 is very high. First you pay 3.25% less in interest on the $36k. Second you save the $1,800/year PMI. It's a 8% return right there. It wasn't Amerisave's fault the appraisal came in low. So I wouldn't punish Amerisave for it with the rescission.
Mudpuppy wrote:Dr. Gaius Baltar wrote:I'm trying to determine my rate of return on refinancing if I have to pay down the mortgage to get the refinance. Can someone confirm if I have my math correct?
Yearly Mortgage Payment Savings / Amount of money I have to reduce the mortgage to get these savings = rate of return
So if in order to get a 2.625% 7/1 ARM with a monthly savings of $386.39 (yearly $4636.68) I have to reduce the mortgage by $36,000, then my rate of return is 4636.68 / 36000 = 12.9%/year. Is that correct?
That would be for the first compounding period. You're missing the effect compounding would have on the $36,000 if left in investments for the considered time period. This leads to an overestimated rate of return.
What you want to calculate is when would the interest earned over the time period be greater than or equal to the savings on the mortgage over that same time period. To calculate the interest earned, you need a compounding interest formula (and usually these formulas calculate the TOTAL principal after the time period, so don't forget to subtract the original principal to get the interest earned). Then you'll set up an equivalency equation and solve for the rate. You'll likely need a calculator that is capable of calculating exponents/roots other than squared or cubed.
And keep in mind that most compounding interest formulas assume the rate of return is consistent over the time period and does not decrease, which means it really only approximates fixed return investments, not risky investments like stocks. But it can get you a mathematical ballpark. For example, when I used my favorite interest rate formula for a quarterly compounding investment over 5 years, I got an equivalent rate of 9.68% given the numbers you cited for monthly savings.
Dr. Gaius Baltar wrote:That's Bank of America alright. Did you already have a loan with them and were you trying to refi?Recently I have been giving some thought to trying a new lender. The whole process feels like rolling the dice. Very frustrating.
I hear you. There's absolutely no rhyme or reason to these appraisals, which is what makes it so nerve-wracking. You get the wrong appraiser, and your house loses half its value? My god!
Dr. Gaius Baltar wrote:
1) Proceed with the refinance, but pay ~$153.62/month in mortgage insurance premiums due to the LTV being so high now. I haven't been paying mortgage insurance before.
2) Lower my mortgage to $340,000, which would require paying down the mortgage by $36,000 immediately.
3) Cancel the loan and pay for the appraisal and credit report only (about $465).
Current mortgage at 3.75% is $1,752/month. With 3.25% it would be $1,637 with no mortgage insurance premiums at the current loan balance ($376,208), or $1,479.70 with no mortgage insurance premiums at $340,000.
I am maxing out my 457 and Roth IRA contributions.
If I proceed with option 2, it would be with money withdrawn from my taxable account that would otherwise have been invested in a 27/73 stock/bond fund portfolio.
I intend to keep this house until 2016 or 2018 before moving.
Does anyone think that Option 2 is worthwhile?
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