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Son's Refinace Problem/Question

Posted by grandmum (My Page) on
Tue, Oct 16, 12 at 8:36

Question from my son, he plans to move in a year but considering a reapraising on his current home to lower month payment.

However the home was re-appraised at a lower value than the purchase price/current mortgage. He would still save some monthly, but now after closing costs he only stands to save about 6 grand total during the time he intends to stay in the home.

In order to save that money over the course of staying in the home, he has to come up with slightly more than half of that right away because the closing costs come out of pocket and cannot be avoided or rolled into the mortgage. In order to pay the closing costs he would be evaporating what little cash savings he has.

The family has gone back and forth about whether its worth it. What do you think? Do you feel that the home when reappraised for sale a year and half or so from now would ever get back closer to original purchase price? Or does refinacing with this new value lock that figure into place when he goes to resell?

I think I know the right answer to this although its different than what he thinks... I was hoping to hear opinion from a third party.


Follow-Up Postings:

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RE: Son's Refinace Problem/Question

I'm confused. How does appraising his current house change how much he owes on it?
Are you talking about re-financing his mortgage to take advantage of a lower rate?


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RE: Son's Refinace Problem/Question

yes, refinace to take a lower monthly rate despite the out of pocket closing costs and the length of time he intends to stay in home.


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RE: Son's Refinace Problem/Question

A refinance appraisal does not "lock in" a market price. The market price when he sells it will be whatever the market is then. It could be higher or it could be lower, but it won't be based on his appraisal today.

Saving $6K over a one-year period is pretty significant savings. That's $500 a month. That it's that high, even after closing costs, surprises me a bit. Is it a very large mortgage or a very high current interest rate? What's the current rate and new rate?

I'm a little worried that he's only got $3000 in savings total. That's remarkably little cushion for life. I'd go ahead with the refi, since $6K is $6K, and plow all the monthly savings into building back an emergency fund.


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RE: Son's Refinace Problem/Question

Thanks for the clarifications.

Actually I Dont have the exact numbers but its currently around 6% going to about 2%. Over a 18 month period, withthe refinace he is set to save around 5200 bucks (around 300 a month) but has to come up with slightly more than half of that right now for closing costs. THis will tap out his emergency funds.

On top of this, the appraised value is signaficantly less (for us) than what he paid. He still in for the PMI too. He plans to move in less than 2 years as well...

He was led to believe that the closing costs (including appraisal) could be rolled into the mortgage but that cant occur now since the appraisal was low. He fears he is out the appraisal fee as well now.


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RE: Son's Refinace Problem/Question

If the value of the home is less than what it was when he purchased, he may not be able to refinance. It all depends on what he owes. The bank will only refinance 80% of the value.

Im not quite understanding what it is you are saying.

The appraisal today, has nothing to do with the appraisal a year and a half from now. N O T H I N G!


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RE: Son's Refinace Problem/Question

We were posting at the same time. With your second post it makes sense. He will not be able to refinance. He doesnt have enough equity in the house to qualify for a refinance.

He is out his appraisal fee. They do appraisals to make sure the value is there so they can do the refinance. He found out the value is not there. The service was done. He paid for the service.


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RE: Son's Refinace Problem/Question

The refinance can go thru, just barely. The rate is locked and its in the hands of the underwriter but common sense and the realization he will be tapped after the closing fees he thinking of rescinding.


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RE: Son's Refinace Problem/Question

Grandmum, doesnt seem to make sense, if he has PMI, it means he put down less than 20%. If the house is appraising for less than what he paid, then he is even more beyond that 20%. If he can't roll his closing costs in, it means that the house isnt appraising even high enough to roll in his $3000.

IF Im missing something and it can go thru, he is saving $300 per month. I would go ahead and tap out to save $300 per month. That $300 per month will be back in his savings in 10 months.


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RE: Son's Refinace Problem/Question

IF Im missing something and it can go thru, he is saving $300 per month. I would go ahead and tap out to save $300 per month. That $300 per month will be back in his savings in 10 months.

Totally agree with this. $3000 is barely even an emergency cushion, so going from "barely anything" to "no cushion" isn't a big deal if it's going to be replenished fairly quickly.


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RE: Son's Refinace Problem/Question

thank you. I apologize if i am not very clear, i am not very savy when it comes to this stuff.

In regards to tapping out the savings for the closing costs, I think he is thinking that is kinda of like a robbing Peter to pay Paul kinda situation since he will need to put the 300 saved each month back to his emergency fund. Im going both ways on this, I kinda feel if it takes 10 months to reimburse himself it would be worth it if his intentions was to continue paying that mortgage past about 16-20 months total he plans to stay.

Again I apologize, just kinda thinking outloud...


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RE: Son's Refinace Problem/Question

Also thanks for the clarification on the appraisal. I was concerned. I do now understand that market values, comparable properties determines the value. At the time of resale, another appraisal would be made to determine the asking the price (hopefully for the better).


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RE: Son's Refinace Problem/Question

There really isnt that big of a question. The question is,

Does he spend $3000 to lower his payment by $300 per month. He will have the $3000 back in 10 months. SOOO in 10 months, he is right back where he started with a mortgage payment that is $300 cheaper than where he started. Pretty simple.


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RE: Son's Refinace Problem/Question

I think he should do it and plan to stay in the house a longer period of time. (I assume "plans to move" means he doesn't HAVE to move.)

I just don't see how he's going to move without taking a financial bath in the situation as described. He should lower his payment and build up savings.


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RE: Son's Refinace Problem/Question

There are programs available for even underwater owners.


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RE: Son's Refinace Problem/Question

I agree that if it "costs" 3000$ but payments are 300$ less it is made up in 10 months. BUT, with a new mortgage, the majority of payments is going to INTEREST. Even a year old mortgage has more of the payment going to principal. So one needs to look at the mortgage BALANCE at the end of a period to really know if it was worth it. (ie refinance may lower payments by 300$ but it will take longer to pay it off since you are back at payment one) This requires looking at the amoritization table, which I do not have the skills to create. An honest mortgage broker can help you with this. But, they are biased to want you to refinance since that is how they get paid.

Another thing that needs to be looked at, what if they pay the $3000 they would pay to closing costs to the current mortgage. That will also jump them ahead on the current mortgage.

All of these $ scenarios (keep paying current, refi, pay closing costs to current mortgage) can be written out so you can see the cost differences over the next few years.

Also, going from a 30 year to 15 year or vice versa makes a huge differences on when it could be paid off or where you are at payment wise.

In general, it seems unlikely to be a good idea to refi if a move is anticipated so soon. And, I am surprised the cost can not be rolled into the new mortgage.


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RE: Son's Refinace Problem/Question

"I am surprised the cost can not be rolled into the new mortgage."

If the note is already under water adding to the balance is not a likely occurrence.


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RE: Son's Refinace Problem/Question

whoops, read too fast and missed that point that the appraisal is LOWER then the current mortgage balance. Doesn't that negate this whole conversation since NO lender will finance a loan ABOVE the total appraised value of a property. Even the most generous loan with stellar credit would not loan over 100% of value.

If he owes more then the home is currently worth he should be working with the lender to do a mortgage readjustment. No other lender will touch it. Anyone offering to refinance an upside down mortgage sounds like a scam to me. Or am I again reading too fast and missing something?


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RE: Son's Refinace Problem/Question

Grandmum, am I reading correct that your son's current mortgage is more then the new appraisal of the house?

That means he is "upside down" and owes more then the house is currently worth. No new mortgage company will take over that loan that I am ware of, unless he can "buy" the difference in cash to make it not upside down. And even then, many mortgages want 5-20% down payment.

Google "upside down on mortgage" and a lot of information will come up.

It sounds like your son needs some financial advice if he only has 3000$ saved. That is only one accident or sickness away from financial crisis.I would hold onto it rather then spend it at once.

The first mortgage may be willing to adjust the interest rate at little fee to lower his payments. There are some programs where they will even lower the balance owed, but that is very rare.

The value, appraisal in 1-2 years should not be effected by current appraisal. But, people still use any number they can get to figure relative value. (We all want to know a home's prior sales price even if the market is totally different now vs then). But I do not see how anyone besides the bank would know the earlier appraisal?

Good luck!


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RE: Son's Refinace Problem/Question

"Doesn't that negate this whole conversation since NO lender will finance a loan ABOVE the total appraised value of a property."

IF the loan is owned by Freddie or Fannie there ARE programs that will refinance under water.

The bank gets paid by the feds to do the paperwork, then resells the loan immediately back to the feds so they could care less.

There are qualification rules though.

Try a mortgage broker instead of a bank.

The first thing you need to know is WHO OWNS THE NOTE?


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RE: Son's Refinace Problem/Question

For example, if the new appraised value is 200k and the current loan is 250k, wouldn't a new mortgage company have to pay off the 250k to "refinance" ? Otherwise the original lender is agreeing to a "short" payoff.

I thought if you are upside down, you would have to try to renegotiate a new interest rate and/or payments and/or a new mortgage balance with your current mortgage? (Or short sale, or foreclose) It seems unlikely to get a new lender involved at that point.

Sorry, I should not have been so definitive, I am no expert on this, but I have read a lot about it online (so it must be true) and I once stayed in a Holiday Inn Express!


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RE: Son's Refinace Problem/Question

Something is missing here. Is he dealing with broker or bank?

Is he refinancing the same mortgage type as original? Or from what to what?
What is his credit score?

Is the mortgage balance going to increase as a result of the refi but lower rate lowers payment?
Last question, how long did he have prior mortgage? As it comes across someone wants him to refi to increase balance and maybe ARM or 1/2 mortgage which lowers his payment but may increase what is owed on his home.
If that is accurate it isn't worth it!


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RE: Son's Refinace Problem/Question

"For example, if the new appraised value is 200k and the current loan is 250k, wouldn't a new mortgage company have to pay off the 250k to "refinance" ?"

The new lender writes a loan for the balance of the mortgage.

Nothing 'short' about it.

The risk is higher since the collateral is not worth as much as the loan.


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RE: Son's Refinace Problem/Question

Without numbers doesn't make sense. However, if he is paying PMI it doesn't mean his new mortgage is upside down as he may go from 82% ltv to 90% ltv.
On a 350k home that is 35,000 change in value.


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