Pros and Cons of Refinancing

jahmmyOctober 4, 2006

Hi all,

We refinanced our mortgage in June to take out a HELOC so we now have a mortgage and HELOC. Our mortgage broker called the other night to tell us interest rates had gone down and we could refinance the mortgage at a 1/2% point lower. There would be no closing costs for us and we would save about $100 per month. There's no prepayment penalty on the mortgage.

Am I missing something? It seems to good to be true.

Thanks,

J.

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Chemocurl zn5b/6a Indiana

When I built and had a building loan, I paid points and closing costs. Once the house was done, it was rewritten to a mortgage, and I paid points again (not sure about closing and other costs). I was told that I then had an indemnifying loan, meaning that anytime the interest (fixed rate) dropped, that I could have it rewritten as many times as I wanted at no further cost.

I had it rewritten 2 or 3 times, and each time I just kept it so my monthly payment was the same, but the life of the loan was then shorter. I really did not need to have the monthly payments reduced and was anxious to 'own' my home, as opposed to the bank and I owning it.

If you are comfortable with the payments as they are, you might have it rewritten, making the the payments the same as they are, but just have them for a shorter period of time.

Another thing you could do, is have the mortgage rewritten, leaving the life of the loan as it is..but 'No Longer' and use the additional $100 as additional payment on the principal of the HELOC. Since they contacted you, I am left wondering if they are wanting and hoping you will have the mortgage rewritten for a longer period of time maybe.

Be careful and watch out for numero uno.

Keep us posted. I'll be anxious to hear how well things work out. It sounds like a win win situation for you.

Sue

    Bookmark   October 4, 2006 at 8:13AM
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pamghatten

Hi J,

As a mortgage banker ... that definitely sounds too good to be true. No costs? Sorry, but a all refinances have closing costs .. unless he's building those costs into your interest rate, or into your new loan amount.

Is he talking about just refinancing your HELOC? You need a lot more information from him before you can figure out if this is good or not.

The poster above sounds like she worked directly with a lender, not a broker. The lender can offer "float down" options to their borrower since they own the loan. A broker just facilitates the application for a loan.

Ask lots of questions!

    Bookmark   October 4, 2006 at 1:19PM
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jahmmy

His company pays for the closing costs. It's our mortgage, not the HELOC that will be refinanced. We're meeting with him on Tuesday to set things out.
Thanks for the comments.
J.

    Bookmark   October 4, 2006 at 4:32PM
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prettyphysicslady

I have very rarely had to pay closing costs, the bank wants your business.

Rumor has it that banks are calling and offering these deals to keep the loans in house, so you don't shop around and take the loan someplace else.

    Bookmark   October 4, 2006 at 10:25PM
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pamghatten

If you are dealing with a "Mortgage Broker", as the OP stated in the original post, they are not the bank/end lender. They just originate the loan and pass it on to a bank.

If they are paying the closing costs it means that they are somehow building that into the price you end up paying for your loan. Most brokers use part of what they are getting paid on the loan to pay a borrowers closing costs.

In theory, you might be able to get a lower rate from whichever lender is currently holding your mortgage, as others stated above since they would prefer your loan stays with them.

That cuts out the middleman, mortgage broker, and you end up in a better position.

    Bookmark   October 5, 2006 at 2:19PM
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joyfulguy

Thanks for your info, folks - from one who's not involved.

But has been curious for years.

ole joyful

    Bookmark   October 6, 2006 at 4:13PM
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Chemocurl zn5b/6a Indiana

jahmmy,

Update please.

Was it indeed a good deal? Or were they wanting you to take it for a longer term?

This inquiring mind want to know.

Sue

    Bookmark   October 13, 2006 at 11:45PM
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jahmmy

Hi all - OP here:

So we met with the mortgage broker to sign the disclosures/application. Each fee/cost that was on the disclosure (attorney's fee, etc.) had a separate line item taking it back off. It's the same time frame (30 years) and 1/2 percent lower (6.5%). We'll save about $110 each month. The loan amount is actually a little tiny less (b/c of the 5 payments we made towards it). My DH and I both have good credit (around 760 for each of us) so maybe they can get a good rate for selling it? That's the only thing I can think of.

    Bookmark   October 14, 2006 at 9:36PM
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nynicole

We are thinking of refinancing our HELOC to pay off high interest rate credit cards. The HELOC we have now is variable APR that went up to 10-11% when rates were high. If we refinance the HELOC we will take more out to pay of the credit cards but the variable apr will start at 5%. 2 questions for all:
1) Any tips on convincing/negotiating with bank to pay part or all of closing costs?
2) We have about $40,000 in equity and think, even in a conservative market that the house will sell for about $50,000+ what we purchased it for. Would it be a bad idea to refinance the HELOC is I want to sell the house in 1 to 2 yrs?

    Bookmark   March 29, 2008 at 12:03PM
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dave_donhoff

Hi NyNicole,

How much HELOC do you have now?
What is the limit, and how much do you have drawn?
What is the total property value expected?
How much is the balance on the 1st lien?
How's your credit? (Know your 3 scores? 6 if married?)
What's the employment history situation?

Cheers,
Dave Donhoff
Strategic Equity & Leverage Planner

    Bookmark   March 29, 2008 at 5:50PM
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nynicole

1) Our original HELOC was for $18,150, we never took a draw and it's now down in the $13,000 range. 2)House on low side will sell for $230,000(assuming the market stays in the dumps, if it goes back where the market is expected in 1-2 yrs, may sell for $240-$250) 3) Balance on 1st lien? Meaning principal mortgage? I think amount owed on mortgage is around $139,000 4) Husband's credit good, husband at job 7 yrs. He is doing the HELOC b/c my credit has gone down since I went into biz. for myself 2 1/2 yrs ago. 5) Since I last posted we were approved for $45,000
starting at 5.25% but it is variable. We may go for $50,000 at 4.75% also variable, but only utilize $35,000 of it.
Thoughts? Advice. Thanks for responding. :)

    Bookmark   April 2, 2008 at 11:44PM
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dave_donhoff

Nicole,
That sounds like a very worthy offer... especially if you can lock a margin of -0.5 on top of Prime (4.75% today) for a $50,000 line.

Short-term rates won't likely be heading north for a good long time, so you'll get plenty of opportunity to eliminate the high-cost debts and accumulate significant safety reserves before you're ever facing significant interest costs.

Luck!
Dave Donhoff
Strategic Equity & Leverage Planner

    Bookmark   April 3, 2008 at 3:16PM
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