Refinancing Question

[terpkristin]

Ok, I need a sanity check here, something isn't adding up to me, and I want to know if I'm going crazy or if I'm getting jobbed.

In September 08, I bought a house. I put 20% down and had a rate of 6.375.

Earlier this year, I decided to look into refinancing, and finally settled on going with Lending Tree, at a rate of 4.99. The refinance will cover my closing costs, so my new loan is actually 7k higher than my original loan. Also, the value of my house dropped by 4k. So, this time around, I'm going to have to pay PMI.

I'd originally gotten a quote from Lending Tree that, all said and done, would yield a payment per month $187 less than I'm currently paying now (I assume it did not factor in PMI, which by my estimates should be about $64/month, based on tools found online).

Last night, they sent me the estimated closing documents, which said my monthly payment would be $90 less than I'm paying now.

Then, the disclosure documents came out which said my monthly payment would be about $40 less than I'm paying now.

Also, either I can't do math or Lending Tree can't, they said my loan-to-value is 87.55%, I did the math and came up with 83.56%. Is there anything odd to know about calculating the loan-to-value?

Does it make sense to anyone else that I'm dropping my rate by more than a point and only saving $40/month? Or, as I fear, am I getting jobbed?

/tk

[jbergey22]

You are probably getting the cheaper rate because you are adding PMI insurance. Once you are down to 80 percent you SHOULD be able to drop the PMI insurance which will make a good sized difference in payments.

I'm guessing you didnt need to have PMI insurance on your initial loan?

Did you sign up for any additional insurance? Disability?

[terpkristin]

No PMI on the initial loan, but the fact that the monthly payment has changed 3 times, always going up, makes no sense.

The fact that the PMI I calculate doesn't seem to line up with any of the quotes they've given also makes no sense.

I didn't sign up for any additional insurance. Even with PMI, though, it doesn't make sense to drop my rate by a point and 3/8 and ONLY save $40 a month. By my calculations, the savings/month should be a little over $100 with PMI.

/tk

[Mizzou B-ball fan]

FYI......I know that Toddiec is a mortgage agent at a bank. Might want to PM him with questions.

I personally would never even bother with a loan where I couldn't reach across the table to strangle the agent if need be.

[jbergey22]

No PMI on the initial loan, but the fact that the monthly payment has changed 3 times, always going up, makes no sense.

The fact that the PMI I calculate doesn't seem to line up with any of the quotes they've given also makes no sense.

I didn't sign up for any additional insurance. Even with PMI, though, it doesn't make sense to drop my rate by a point and 3/8 and ONLY save $40 a month. By my calculations, the savings/month should be a little over $100 with PMI.

/tk

Yeah then something doesnt seem right.

Your payment should drop around $100/p month every 100,000 on a 30 year and around $75 per month per 100K on a 15 year loan by cutting that percentage rate(1.376).

[cubboyroy1826]

I gotta run right now but i will weigh in a little later. I am a mortgage banker and i will say that things do not sound right.

[terpkristin]

Thanks for the inputs, guys. This didn't pass the sniff test to me, and was trying to make sure I wasn't crazy. I'm going to call Lending Tree when they open and either cancel working with them, or get things 100% right. If I cancel, I'll be out the good faith deposit, but peace of mind will be better, and I've got the name of someone locally I can work with.

/tk

[Swaggs]

$7K for closing costs seems like a ton to me.

We refinanced last year and it was around $1200 (they waived our inspection b/c we had just bought the year before).

[Mizzou B-ball fan]

$7K for closing costs seems like a ton to me.

We refinanced last year and it was around $1200 (they waived our inspection b/c we had just bought the year before).

Agreed. Had two family members get free refinances on substantial loans. Got to be a better deal than that somewhere.

[Mustang]

Being at 20% before, were you possibly not putting home insurance into escrow and now they are? I could see it being an initial savings of X, them saying oops we forgot PMI and then oops we forgot insurance.

[CU Tiger]

If you have a strong credit score you should be able to get a free of darn near refi...we just refinanced 4 rental properties, with 2 different companies and paid less than $500 in CC in both cases.

[cubboyroy1826]

Okay a couple of things that do not make sense.

1. $7k in closing costs is sick i would be interested in looking at the good faith estimate.
2. If did not have PMI previously and your loan is owned by Fannie Mae or Freddie Mac you should be able to do a Refi Plus which allows you to go over 80% and still not have PMI. To check if you loan is a Fannie or Freddie loan go to the following:

Fannie - http://loanlookup.fanniemae.com/loanlookup/

Freddie - Avoiding Foreclosure - Does Freddie Mac Own Your Mortgage? (https://ww3.freddiemac.com/corporate/)

You will have to input some basic info but if your loan is owned my either you should not have to take on PMI.

FYI i would never pay a good faith deposit unless this is going towards the appraisal. The appraisal that was done already may be tranferable to the new lender. Hope this helps. Feel free to PM me with any questions.

[terpkristin]

Thanks for all the input, guys.
Lending Tree's getting a call in about 10 minutes, none of the math makes sense, I'm going to drop them.

It's absurd to me that with a great credit score and NO DEBT (aside from the house), this is what's going on.

Glad I'm not going crazy...
/tk

[cubboyroy1826]

Typical Lending Tree stuff actually.

[terpkristin]

Well I have cancelled with Lending Tree. Now to talk to the local guy.
Thanks.

/tk

[Samdari]

$7K for closing costs seems like a ton to me.

We refinanced last year and it was around $1200 (they waived our inspection b/c we had just bought the year before).

She'll be paying points to get that rate....

[cubboyroy1826]

Depending on the loan size, credit score etc 4.99% was a doable rate yesterday without paying points.

[FrogMan]

Typical Lending Tree stuff actually.

interesting link for you TK. Since I had no clue who Lending Tree was, I just googled the name and this link was the third to appear on the page:
Consumer complaints about Lending Tree (http://www.consumeraffairs.com/finance/lending_tree.html)

there is mention of misleading on closing costs and such odd things...

FM

[Big T]

Would some of those closing costs include pre-payment penalty?

[henry296]

I know I'm refinancing with my current lender and they are waiving the PMI insurance even thought my LTV is >80%

[cubboyroy1826]

The waiving PMI is part of the new Refi Plus program to help home owners who have gotten hurt by the crash of property values.

[Swaggs]

I'd be curious to see if TK has a detailed breakdown of how they got the closing costs to $7K. I still cannot get over that -- that almost sounds like something that needs investigated.

[terpkristin]

They couldn't (wouldn't) tell me how the 10k closing costs came out. I know about 2.5k was points. No pre-payment penalty on my current mortgage, so it couldn't have been that.

Oh well. I'm done DONE DONE with that, talking to a local guy who my friend used today. Hopefully it'll go better than Lending Tree....

/tk

[wade moore]

They couldn't (wouldn't) tell me how the 10k closing costs came out. I know about 2.5k was points. No pre-payment penalty on my current mortgage, so it couldn't have been that.

Oh well. I'm done DONE DONE with that, talking to a local guy who my friend used today. Hopefully it'll go better than Lending Tree....

/tk

Here's the thing - if they were completely shady, I'd think you have an argument to get your deposit back.

[Rizon]

Escrow? Home insurance? Property tax?

$7k costs? If you're only saving $187 a month ... I'm not sure that's going to work out for you ...

I dunno all your stats, but check out
hxxp://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

[Swaggs]

Escrow? Home insurance? Property tax?

$7k costs? If you're only saving $187 a month ... I'm not sure that's going to work out for you ...

I dunno all your stats, but check out
hxxp://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

That's what I was thinking. I'm not an expert (on my second home and we've refinanced the second home once, so three total mortages), so I'm not sure what the widespread thought is on "points," but our broker told us that banks love them because they immediately put money in their pocket, but that they are usually not worth doing, unless your work is giving you a moving stipend to spend or lose, because they take so long to pay off and most people don't keep their house or mortgage long enough.

On top of that, borrowing the money (and paying interest on it) to pay for the points would seem to compound the problem.

Again, I'm no expert and am just using the limited info that I was given along with some common sense (which probably doesn't serve me well, when it comes to complicated financial dealings). I'm sure there has been a lot of research done on the subject. I'd love to hear some pros and cons.

[Mizzou B-ball fan]

That's what I was thinking. I'm not an expert (on my second home and we've refinanced the second home once, so three total mortages), so I'm not sure what the widespread thought is on "points," but our broker told us that banks love them because they immediately put money in their pocket, but that they are usually not worth doing, unless your work is giving you a moving stipend to spend or lose, because they take so long to pay off and most people don't keep their house or mortgage long enough.

On top of that, borrowing the money (and paying interest on it) to pay for the points would seem to compound the problem.

Again, I'm no expert and am just using the limited info that I was given along with some common sense (which probably doesn't serve me well, when it comes to complicated financial dealings). I'm sure there has been a lot of research done on the subject. I'd love to hear some pros and cons.

I've found that a flat rate with no points is always the safest bet. You know exactly what you're getting into with minimal calculation. If you can't afford something at a flat rate with no points, you probably shouldn't be buying it.

[cubboyroy1826]

I do not know what the specifics of Terps loan is but looking at our rate sheets today for someone with a 720 or higher score, willing to escrow their taxes and insurance with a loan amount of 175k or higher we are quoting 4.99% with no points and about $1800 in closing costs. Obviously things can vary from state to state and title costs can vary greatly by state but that rate allows me to make some money on the loan as well.

[terpkristin]

Just wanted to follow up with this.

A week after I "fired" Lending Tree, they sent me a letter saying that my loan had been declined for poor credit. Um yeah, sure. My credit score is above 720, I make enough not to worry about things, and I have no other debt. But I didn't really care...

I ended up going with a local mortgage broker and getting a better rate with fewer points (after I got locked in with Lending Tree, the rates dropped a bit), and close on my refi tomorrow. I'll be saving a bit of money per month, which combined with having just finished paying off my car will make me feel "rich" for awhile, I'm looking forward to putting that money aside into savings (and, admittedly, spending some of it on my trip to Alaska in August). :)

As frustrating as it was at the time, it couldn't have worked out better.

/tk

[SteveMax58]

Just wanted to follow up with this.

A week after I "fired" Lending Tree, they sent me a letter saying that my loan had been declined for poor credit. Um yeah, sure. My credit score is above 720, I make enough not to worry about things, and I have no other debt. But I didn't really care.

Out of curiosity...if they sent you a letter stating they declined you...shouldn't you be entitled to your good faith deposit back?

[terpkristin]

Out of curiosity...if they sent you a letter stating they declined you...shouldn't you be entitled to your good faith deposit back?

You know, I never thought of that...I should look into it. There I was, all happy that the process was almost over and I'd be saving significantly more than $40/month on the refi (which admittedly I was only doing to capitalize on good rates).

/tk

[Flasch186]

Out of curiosity...if they sent you a letter stating they declined you...shouldn't you be entitled to your good faith deposit back?

ding ding

[claphamsa]

heh, missed this the first time (I think) Im just starting a refi now. when all is said and done, Ill pay 27 cents less a month, and take 35K out to redo my kitchen.

[cubboyroy1826]

Terp you might want to take a look at the paperwork you signed. Some lenders have in their paperwork that the application fee is non-refundable. Now some states have different rules on this so you will also want to check in to that. It will not hurt for you to call and just assume your money is to be refunded since they were unable to provide you with the loan they said they could. The lender might push back and say the upfront money you gave them went to the appraisal fee which was a service that was performed.

[lighthousekeeper]

We recently refinanced to an ING Easy Orange and were very happy with that:

Products & Rates General Page (http://home.ingdirect.com/products/products.asp?s=EasyOrangeCosts)

[Chubby]

I do not know what the specifics of Terps loan is but looking at our rate sheets today for someone with a 720 or higher score, willing to escrow their taxes and insurance with a loan amount of 175k or higher we are quoting 4.99% with no points and about $1800 in closing costs. Obviously things can vary from state to state and title costs can vary greatly by state but that rate allows me to make some money on the loan as well.

I'm sure this is tradiitional and not FHA, correct?

[cubboyroy1826]

Yeah that example was for a conventional loan but today FHA is 5% maybe 4.875% depending on the loan amount.

[CU Tiger]

We recently refinanced to an ING Easy Orange and were very happy with that:

Products & Rates General Page (http://home.ingdirect.com/products/products.asp?s=EasyOrangeCosts)


lol a 5 year balloon in this economy....Dont pat your self on the back too much with that one.

Oh and be prepared for the current rate to be double when renew time comes, even if the market is unchanged.

I threateneed to fire one of my PMs last week if he closed on the samee product, I told him anyone dumb enough to spend his money on that is not smart enough to manage my money...

Of course if you know 100% certain no chance change that you are moving in the next 5 years, then sure go ahead....otherwise thats a horrible product.

[cubboyroy1826]

CU I agree unless you know for sure you are not going to be in that home 5 years from now that is a risk I would rather not take. I have some clients that are interested in ARMs and I strongly advise against them unless you know for sure they are not going to still be in that home. With that said many conventional ARMs are actually adjusting down right now but 5 years from i definitely do not see that.

[CU Tiger]

CU I agree unless you know for sure you are not going to be in that home 5 years from now that is a risk I would rather not take. I have some clients that are interested in ARMs and I strongly advise against them unless you know for sure they are not going to still be in that home. With that said many conventional ARMs are actually adjusting down right now but 5 years from i definitely do not see that.

Agree 100% but the ING Orange is not even an ARM, its a 5 year, 61 payment balloon.

There are numerous gotchas (I am basing my statements on reading my employees paperwork when he asked for my advice, and assuming all ING orange refis are the same, this may be a bad assumption) including if you do not refi the amount with them there was a 20% instant penalty, and early termination penalties.

His at least was a predatory lending horrible product, and it pisses me off because he is a good kid and trying to do the right thing and was being taken advantage of.

[cubboyroy1826]

Wow a prepayment penalty as well. Talk about a dinosaur of a product. I have not seen a prepayment penalty on a loan for a couple years now.

[Chubby]

Yeah that example was for a conventional loan but today FHA is 5% maybe 4.875% depending on the loan amount.


That's what I figured. I think NY our rates are a little higher than the average and we got 4.875 when we bought the new house a year ago (good thing we weren't married yet so we could get the $8K). We plan on being here 18+ years minimum thru Tyler's HS graduation (he's 8.5 months old) so I doubt we'll be refinancing at any time unless there's a worse crash down the road which I hope we don't see...

[lighthousekeeper]

lol a 5 year balloon in this economy....Dont pat your self on the back too much with that one.

Oh and be prepared for the current rate to be double when renew time comes, even if the market is unchanged.

I threateneed to fire one of my PMs last week if he closed on the samee product, I told him anyone dumb enough to spend his money on that is not smart enough to manage my money...

Of course if you know 100% certain no chance change that you are moving in the next 5 years, then sure go ahead....otherwise thats a horrible product.

*shurg* this loan is probably a horrible product for most people, but i am working it to my advantage and a perfect candidate to do so (pathologically thrifty, great job security, relatively stable life, etc). And I expect to pay 80-100% of the principal off in the 5 years, aided in part by the reduced interest rate. i ran several simulations before refinancing, and feel pretty confident that i will come out ahead. at the time the baloon was looking better than a 5/1 arm or fixed rate.

i have a singular goal: let banks have as little of my money as possible. that means find the lowest rate possible and avoid doing the stupid things that other people get caught doing (like not sticking to an agressive payoff). the banks are banking on you making a false step and getting caught in a resetting mortgage situation, but i'm willing to play that game. ultimately, if you treat it like a 30 year mortgage you will get burned bad - if you treat it like a 5-10 year mortgage, it can be a good thing.

on a separate note, people will counter suggesting to not pay off your mortgage early, take advantage of the imminent inflationary times ahead by taking on debt now at reduced prices. maximize the tax benefits, etc. But I simply want to have the peace of mind of owning my home completely. Right now for me that peace of mind outweighs all, even perhaps sound financial reasoning.

and to put a stop to the false information: there is *basically* no prepayment penalty. (only a penalty if you want to pay off the entire balance in the first year)

finally, ing seems to have comparatively low closing costs.

[cubboyroy1826]

Sounds like you have a plan Lighthouse. Unfortunately most people do not when they get into these loans.

[CU Tiger]

I too am debt adverse, and owe less than 40% of my homes value and nothing else.

That said, man plans and God laughs.
What if...
Job Loss
Medical Emergency
etc,etc,etc.

Then in 5 years you may be looking at 20=% interest rates.

The difference between 5% and 3.8% is fairly minimal. especially on a 5 year horizon, I just cant imagine the risk being worth the reward. And I may have mispoke on the pre-pay penalty, it was more like guaranteed interest, so that you were paying 5 years of interest even if you paid it off in 24 months...