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refinancing a home...questions for experts?(19 posts)

refinancing a home...questions for experts?ColnagoFE
May 21, 2003 11:06 AM
i feel like a dunce dealing with these bankers regarding a possible refinance and it seems there are lots of money experts on this forum so i thought i'd ask. here's the basic situation...currently i'm have a standard 30 year home loan of about $100k @ 7.25%APR. i also need about $6k to finance some improvements on the house. i was thinking of refinancing for about $110k at 5-5.5% (todays rates). The banker I talked to regarding this claimed we could keep about the same payment we are paying now and cut our term from 30 to 15 years in the process if we didnt care about lowering out monthly payment. Closing costs would run about $2200 and closing would take place sometime in July if we did it "today." Anyway...I've done a little shopping around but I can't really tell if this is a decent deal or not. It sounds great to me but am I missing something? I stand to save about $10k in interest over 10 years and cut my loan term in half, plus also have $ for the improvements to the house.

Basically...what kinds of questions should I be asking to make sure I'm getting a good deal here? Is $2200 reasonable for closing costs and why the heck does it take so long to close? Any negative tax consequences to doing this? Comments/suggestions appreciated.
$2200?mohair_chair
May 21, 2003 11:20 AM
$2200 in closing costs sounds high on a $110K loan, unless you are dealing with points. Do you know how that adds up?

I don't know what state you are in (Colorado?) and what the laws are, but that does sound like a long escrow. It's probably 45 days, which is excessive for a refi. In California, at least in the SF Bay Area, 30 days is standard.
dependent on the total valuation of the property?ColnagoFE
May 21, 2003 12:45 PM
I'm in COlorado. Boulder specifically--housing costs here are pretty high. is the closing cost affected by the total valuation of the house maybe? I havent shopped this around yet, but thought I'd at least start with my current mortgage holder (Wells Fargo).
kinda but not reallymohair_chair
May 21, 2003 1:06 PM
From what I understand, Boulder and the SF Bay area are pretty similar as far as housing costs.

The valuation of the house might affect the interest rate you get, due to general credit-worthiness, but it shouldn't otherwise affect your closing costs. Closing costs should be:

- loan application fee
- escrow fees
- title fees
- appraisal
- other fake fees that sound important but are just profit (copy fees, etc.)

You should be given a good faith disclosure that will list all these. $2200 still sounds high. My last refi, also with Wells Fargo, had closing costs of $1500 on a $390K loan.
$2200?CurtSD
May 22, 2003 7:52 AM
re: $2200 closing costs

Whether this is excessive or reasonable depends on what's included in this number. Normally, the loan origination fee will be 1% of the loan amount. Some of the other things that may be included are:

Points (to buy down the interest rate - I would never pay points unless I was sure I'd be living in the house for a long time, and maybe not even then).
Appraisal
Paying property taxes for the remainder of the calendar year.
Prepaying homeowner's insurance.
Establishing an escrow account (putting several months worth of tax and insurance payments into the account).
Various filing fees, etc.

If the $2200 inludes all closing costs, then it sounds reasonable to me. If it's just a loan origination, then it's excessive.

Those are my opinions, for what they're worth.

Later,
Curt
except...mohair_chair
May 22, 2003 8:05 AM
He's doing a refinance, so property taxes and insurance should not be included.

I think the high number comes from points (points = loan origination fee).
except...CurtSD
May 22, 2003 10:51 AM
True. But the $$ that go into the tax/insurance escrow can be significant. I just did a refi on a property, and even though the new loan is with the same lender, they wouldn't roll the escrow account over to the new loan. I had to pay all of the escrow cash (10 months insurance, 3 months property tax) for the new loan, and the escrow balance for the old loan will be refunded to me later. I still wouldn't be shocked to see the total closing costs of $2200 without any points.
not quitejtolleson
May 23, 2003 9:50 AM
The new lender will indeed collect "pre paids" for the escrow account -- taxes and insurance are pretty common. Any balance in the OLD escrow account will be refunded soon.

So, until we know what the $2200 is for, we can't tell if it is a good deal. If it includes BOTH true closing costs (origination fee, title insurance, appraisal, and doc prep) and then some pre-paids (6-12 months of taxes and insurance) then it is probably fine.
Sounds reasonable to me.94Nole
May 21, 2003 11:32 AM
Rule of thumb I am familiar with is about 3-3½% of the loan amount. You are in the 2% range.

Does that include discount points or origination fees? If with your current mortgage co., you can likely negotiate out of these, depending on the rate.

15 year note is best if you aren't looking for increased cashflow. You build equity faster and pay off the note much faster and I would be surprised if you didn't save more than 10k. Remember, most people don't stay in homes 15-20 years anymore, so determine what you real goal is.

Maybe I am missing some of the details but comparing a 110K note at 5% for 15 and 30 years, you will pay about 55k more interest over 30 years than you would over a 15 year period.

Hope this helps.
thanks all...will check on discount points and origination feesColnagoFE
May 21, 2003 12:42 PM
not even really sure what those are (told you i was a dunce at this stuff) but will do my research...why dont they just make this stuff easy and give us a bottom line! i guess my real goal is to have this mortgage paid off early. we'll likely stay in this house until the kids are out of school...another 12 years or so unless I get a job in another town. After the kids are gone to school we'll likely move again. the idea of owning this current house free and clear by the time i'm 50 appeals to me and i hate to stay in debt on anything even though a mortgage is a pretty good debt to have if you're gonna have some debt.
not to medr hoo
May 22, 2003 3:04 AM
we paid about 1/3 that for a simiar sized refi at our credit union.
maybe costs are higher here?ColnagoFE
May 22, 2003 5:32 AM
I just plugged the #s into a online calculator at my credit union and the total closing costs were actually higher than $2200. Also filled out one of those lendingtree.com things online to get 3-4 other quotes so I will see what those look like and make a decision.
maybe costs are higher here?FTMD
May 22, 2003 9:28 AM
I just closed on my first home loan. Other than establishing an escrow for real estate taxes, one of the big expenses in mine was cost the title insurance. What a joke this is, but the lender "requires" you to purchase it. Look at that too. I find this ridiculous, b/c if the seller/builder gives me a GWD and then a blackmark shows on the title some years from now, I'll just sue on my warranty. Why do I have to buy this expensive policy? The builder is well established, been around for years, and isn't likely to go anywhere soon, so it's not like I wouldn't have a defendant years from now. Okay, rant over.

It was so clear to me at closing that my builder, my lender and the title company were all partners. At one point I overheard a title company employee tell the lender that he was her sugar daddy. I didn't appreciate that.

Anyway, once you get the Good Faith Estimate you'll have a better idea of where those costs are coming from.
got back some more offers--how does this one sound?ColnagoFE
May 23, 2003 5:45 AM
this one sounds like a better offer than my mortgage holder gave me. anything else i need to ask or do you see any red flags here?

15 yr fixed $102,000 @ 4.63%
Origination Fee $0
Points 0.000%
APR Monthly 4.675%
Monthly payment $787
Required Equity 0%
Lock Term 45 days

Closing Cost fee breakdown
Application Fee $295.00
Tax Service Fee $67.00
Underwriting Fee $115.00
Administrative Fee $400.00
Processing Fee $200.00
Flood Certification $18.00
Estimated Lender Fees: $1,095.00
Origination Fee $0.00
Discount Points $0.00
Total Estimated Closing Costs: $1,095.00
much bettermohair_chair
May 23, 2003 6:53 AM
That sounds like the deal to take. Don't you love all those fake fees? 'Administrative Fee?' what the hell is that, and how does it differ from the 'Processing Fee,' the 'Underwriting Fee,' and the 'Application Fee?' Make sure you get them to explain exactly what each one of these junk fees are and how they are different. You can negotiate these things to some extent, so you might embarrass them into reducing or eliminating one or more of them.
the best I've seen, and I just did this, tooDougSloan
May 23, 2003 7:02 AM
At least they left out the "Fee estimation fee."

Doug
Lender recommendation...jtolleson
May 23, 2003 9:53 AM
seriously, since you are also in Colorado, take a look at South Park Mortgage (they are on the web). Best rates and lowest closing costs I have found. I used them twice, and have had probably 10 friends use them with great success.

You can apply through their website (they are in Littleton) and then they ship you the completed docs. Nice folks, and they've got a 30 year fixed for like 5.2 right now.

You can mention my name as referral (or not), but see them on the web at www.southparkmortage.com
the 15 year...rockbender
May 23, 2003 1:58 PM
It sounds like you've already discovered that the 15 year term would be good for you. I agree - if you are going to stay in the same house for that long, and can swing the payment, it is definately a good way to go. In ten years, you can find some other way to get your tax break : )

Another thing that may offset your payment would be mortgage insurance. If you had less than 20% equity, you were likely required to have it when you first financed your home. At the time of refinance, your home will have likely have appreciated enough that it will bump you above the 20% equity mark and you won't have that additional 50-100 bucks a month that is going towards absolutely NOTHING!
re: refinancing a home...questions for experts?jim_hasner
May 27, 2003 12:27 PM
hello, first of all, i dont know how i found this site, because i am not a road biker, in fact i am very much the opposite (freerider), i am still a biker however, and happen to be one of these "experts" you have requested. plus i live in denver. Any way call me with questions, and i'll give you advice (there is way too much to type it all here). heck i'll even do a loan for free, if you buy my bike...
303-267-9410 x208 Jim hasner