Need some advice from you mortgage guys...

[Lalanae]

Eric and I have owned our home for a little over 4 years now. We are thinking about refinancing, but neither one of us know anything about mortgages and refinancing, so I have some questions. Just an FYI that we pay 6.25% and have been paying that stupid mortgage interest each month because we didn't put any money down. I think it's safe to say that the value of our home has gone up enough to cover that, but we haven't gotten an apraisal yet.

Is this a good time to refinance? If yes, what type of rate is reasonable? What should we avoid?

Any advice? Even a a link to a website that isn't run by a mortgage company trying to get our business would be great, something to explain things and keep up out of trouble. We really have no clue about all this stuff.

[Spankes]

Whether or not it is a good time to refi I suppose depends on local market factors, so I can't really answer that. I will tell you that if you have good credit and can get a conforming loan you may be able to get a better rate. You said you were paying mortgage interest, but are you talking about mortgage insurance, typically referred to as MI? If that is the case you need to get your mortgage to not exceed 80% of it's value in most cases. This, again, goes back to local market conditions and values. But, I will cut to the chase...

If you are confident that you owe less than 80% of your home's current value you can often times call the bank servicing your loan and ask them to re-evaluate your MI requirement. They will typically review the request and send an appraiser (at your expense) to look at the property and determine the value. if the value given by the appraiser puts you below that 80% threshold you should be good to go. A couple notes about that. First, you (typically) can not have had any late mortgage payments in the last year or two. And, these appraisals are typically conservative because the appraiser is working for the bank and is not going to push the value. But, these and other requirements vary by lender.

If you are not at or below 80% there are plenty of loans out there that do not require you to pay MI...though you are typically paying for it in the end via the rate. But, if you are able to get the same or lower rate and not pay MI it might be worth it to proceed as you will save money in the end.

My recommendations:

Go to your bank first and/or current mortgage lender first and ask them about refinancing. Often times they will be the best deal, especially with good credit. But, once, I went to refinance my home (also because of MI) and my lender at the time wanted me to pay them 3% of the loan amount in fees plus junk fees to do the refinance, my bank was no better. I ended up using a friend of mine who did the loan for me at a much more reasonable price. Ironically, my loan was sold and transferred to my bank for servicing.

Brokers are good for finding the best loan available, but use one you trust or one that someone you know has used and trusts. Remember that they work for you. Require that they disclose all fees up front and hold them to it. Watch out for yield spread (ysp, back end points, yield, compensation paid to broker via lender and a whole lot of other names). This is the bank paying the broker for giving you a higher rate. It isn't always bad, some people don't want to pay fees out of pocket so they add it to the rate. It is also how the majority of brokers make a living so keep that in mind when you are haggling on front end fees and then tell them you won't sign if there is ysp, they need to eat too, but don't let them bend you over. The final note on brokers is that they are there to find the best loan for you. That doesn't mean the cheapest. Some lenders are easier on some requirements than others and the rate is higher because of it. It could be that there was something funky with your loan (odd income, pushed value, job changes or gaps etc) and they went where it could be done.

Finally (for now anyway, i am tired), you live in Texas and there is no more fucked up place in the entire country to refinance (no, really). If you get cash out in your loan, a penny or $500k your loan is considered a home equity refinance and you are legally capped at 80% Loan to value (LTV), your home and all loans on it are then always considered "home equity" loans and must follow the same requirements. The loans also require a 12 day notice that you are aware that you are looking to refinance and that there are costs and risks associated with it. You may not close on your loan any sooner than 12 days after you sign and date that disclosure. After you sign you get another 3 day right of rescission to decide if you really want the loan (the 3 day is in all states). If you don't get any cash out then it is a normal refi with a 3 day RTC but you can't get a penny or pay off anything other than your mortgage at close. Finally, you will be happy to know that TX has VERY strict fee requirements that cap the amount of fees on the loan, so you can't get too screwed...but those fee caps do not include ysp, so keep that in mind. At my last lender title got paid first, then our lawyers (another texas requirement), then us, then the broker. So, if there was nothing left to pay the broker (i want to say the cap is 3% on the front but I am not positive) then the only way the broker made money is via ysp.

[Ashur]

[...] you live in Texas and there is no more fucked up place in the entire country to refinance (no, really).

AMEN!

[Lalanae]

oh goodie.

Thanks Spankes. I have a feeling it's not going to work out for us, but I'll have Eric check with our mortgage co first just in case.

[*~*stragi*~*]

spankes would it be a good idea for me to purchase a shortsale home in maricopa for 80k

[Spankes]

I wouldn't buy in Maricopa or Queen Creek. Both markets have likely hit bottom but I think it will be a long time before they appreciate at all, the drives are too long and the market in the valley is going to slow expansion in the outlying areas. That being said, if you are getting a smoking deal bailing someone out and you are going to make money on it right away perhaps it is a good investment. But, there are so many foreclosures and short sales in the area I am not convinced that there is much upside soon.

[Winnow]

I the Phoenix Metro area, I heard on the radio today, it can take up to 30 months to sell your home as opposed to the normal 4-6 months. (especially in the outlying areas)

It's a buyers market if you qualify!

My brother just bought ~500K home in the Florida Keys. I have no idea why but I guess it's a place to hang out for him as he lives on the west coast. He was able to offer substantially less than the appraised value due to the current market.

[Zamtuk]

Thanks to the market being complete ass at the moment and the sub prime loan crisis, this is a great time to refinance your mortgage. Interest rates are stupid low right now to try to regain some economic strength, so refinancing is a good thing to do sooner rather than later.

Not sure on the value of your house, or the length of your term, but here are the current rates.

https://www.wellsfargo.com/mortgage/rates/

I do, however, disapprove of this thread as its taking traffic away from the finance forum!

[Spankes]

The vast majority of mortgages are not tied directly to the fed. While it is true that as the cost of funds goes down so do rates, there is a margin in the rates that do not make the rate cuts 1:1. Exceptions to this are home equity lines (in most cases) and some other mortgages that tie directly to fed rates. My wife and I took out a HELOC as a security blanket. And, while we have not drawn anything on it the rate has dropped with the fed; so, at least if we need to use it then it will be cheaper!

[Zamtuk]

Yeah, I did word that kind of poorly. I did mean mortgage interest rates to help the economy get out of the sub-prime loan crisis.

On a recent note, the Fed just cut the interest rates again today.

[Xyun]

Just be careful when you refinance. A lot of people don't realize that when they refinance, the have to pay another origination fee and settlement fees which are sometimes high enough to cancel any savings you get from a lower interest rate.

I've done hundreds of closings and have seen lenders really rape people on the fees to make up for the lower rates.

[Spankes]

True that, especially hard money lenders and brokers with lines that can charge undisclosed fees because they are a 'bank'.


The last lender I worked at had guides that restricted fees from brokers to 5% per year per home because some brokers would put borrowers in shitty loans, charge them a truckload for the pleasure of being assraped and then offer to get them in a better loan, overcharging them again. There were also benefit to borrower guidelines that required that there be very specific benefit to the borrower for doing the loan. I think more lenders are doing or looking at doing that. Some states (New Mexico being the first that I can think of) put tangible benefit borrower laws on the books that require that any loan have a documented benefit in the file. When the states do audits they must see that document or the bank gets fined and/or may be required to offer the borrower a new three day right to cancel the loan. In light of the recent sub prime implosion I would not be at all surprised if more states or even the feds started requiring that on all refinances.