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Researching A Refinance

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Refinance now, secure your future!When the Fed dropped its target federal funds rate to 0.00% – 0.25%, one of the other things it said was that it would be buying up long term debt. This, coupled with other moves, has pushed mortgages rates down to the lowest I’ve ever seen in my entire life. Wells Fargo has 4.875% APR listed as its 30 year fixed rate (as of Dec 22, 2008). When I heard about an earlier Treasury plan to take action that would lower interest rates on mortgages to 4.5%, thoughts of sugar plum refinancing fairies danced in my head, but I was reminded of how that was only for new mortgages. The Fed has opened the door for refinances too.

The rule of thumb in refinancing has always been that you don’t want to try it unless the rates differ by a percent or more, it looks like we’ve hit that sweet spot to at least warrant investigation.

Our Mortgage Situation

My current mortgage is $217,488 at 5.875% APR with BB&T and we’re about three years in with minimum payments of $1714.85 a month. Our appraisal was for $299,999 so our current loan to value is 72.5% and we have flexibility to get that value lower. Our home, very fortunately, has not lost value compared to homes sold around us. In fact, in the same strip of townhouses, two homes sold for more than our appraisal price (by about 5-7%) so I conservatively think our house has kept its value despite home prices falling nationally.

Our Strategy

My approach to this will be to check what the actual prevailing rates are by putting in a request with LendingTree, then calling up BB&T to see what my options are with a loan modification, then calling up a few mortgage lenders I know to see what their best deals are. My preference is for a loan modification because those are the cheapest, my number two is working with local lenders because I’ve done so in the past and they’ve been awesome, and the third option is with a “stranger” lender via LendingTree. LendingTree is there mostly to give me a baseline idea of what I should be able to get but you never know what can happen.

I’ll be working on this most of the day and as I make these calls, I’ll write posts throughout the day with updates (and post them to Twitter). If you have any words of wisdom, please let me know either here in the comments, email, or on Twitter. Already, jeffrosecpa told me that some of his clients were getting 4.5% 30-year fixed mortgages with 60% LTV… that’s not bad!

(Photo: thetruthabout

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11 Responses to “Researching A Refinance”

  1. Stacey says:

    How does a loan modification work? I was under the impression that a modification is only for homeowners who can’t make payments, or who are at risk of not making payments.

    Our local bank (original mortgage holder) is encouraging us to refinance with them, but they sold the loan to Chase last year. Can you just call up your current lender and ask for a modification? Does it hurt/help to mention other refinancing offers you’ve received?

    Glad to hear your house has held its value! We’re seeing a fairly stable market in Pennsylvania as well. :) Great blog, I read it regularly.

    • jim says:

      Stacey you’re right, I found this out when I talked to a BB&T loan officer and I have a post coming up in a few minutes explaining them a little bit. They’re only for changing the terms on your loan, like pulling it back out to a 30 year mortgage to lower monthly payments, etc. They aren’t what I thought they originally were, unfortunately. :(

      • Stacey says:

        We’re all learning this together! I really thought (hoped!) that when we signed the paperwork for our current house, we would never have to worry about closing or refinancing again. Alas… but it seems worth the effort to drop more than a full percentage point.

  2. Patrick says:

    I’m going to be calling my loan officer to inquire about the current rate and see how much it will cost to get a refinance. At this point, it is worth looking into at the very least because of how good the rates are right now.

  3. CK says:

    Just locked down 5.0% :-) for 25 yrs. I have a feeling it will go lower but I hate to get greedy. No one is going to cry for me at 5%.

  4. Dave says:

    I’m unfortunately stuck due to the falling house prices. The house next door to me recently sold for $20k less than I bought mine for, so I’m unfortunately out of the refinance game at this point. When I bought, I was just below the 80% loan to value, but now I’m somewhere around 82%. I’d love to refinance at something like 4.875, but I don’t have the balance of cash floating around to make up the difference to get my LTV back to 80%.

  5. I talked to my loan officer about my ARM and, although they would not refi me, they did agree to do a mid-year readjustment on my loan, which dropped the interest a percent or so, lowering my payment about $150 a month. The way things are going, I’m glad they wouldn’t refi as I suspect I’ll get an even bigger drop in May when my loan normally readjusts. It’s a tiny, small town bank that does not have any fixed rate long term products. I’m hanging in for now!

  6. Dan Melson says:

    A Modification modifies an existing loan to make it easier to pay. It is most often temporary. You don’t want a modification. You want a streamline refinance.

    The “cut your rate by 1%” (or any other number) rule is false. Suppose I could cut your rate from 5.875% to 5.5% for absolutely no cost? Would that be worth doing? (for me, in a heartbeat) Suppose I could cut your rate to 4.25%, but it would cost 6 points? (You might, but I wouldn’t) Both options are thirty year fixed rate loans that have been available within the past few days. You should refinance when the savings is worth the cost, given your situation. There is ALWAYS a tradeoff between rate and cost in effect on the loans currently available. Precisely what that tradeoff is varies from day to day and sometimes from hour to hour, but it is always there.

  7. Delano says:

    Rate Shopper Beware! I just paid off my primary home early. I had a 15-year fixed rate at 6.25%. In looking at rates to possibly refinance my second home on which I have a 6% rate for 30 years, I searched online and thought that AmeriSave had a good, “full-disclosure of costs” web site. I found a 15-year, fixed rate at 4.0% and reasonable closing costs. Not wanting to move too fast without a human contact, I spoke with an AmeriSave agent, who assured me that I could get that loan even with my current loan to value being about 75%. He asked me to send him the usual W2s etc. and then urged me to quickly complete the process of applying online for the “4.5%-15-year fixed.”
    I did and got to the point where AmeriSave wanted a $35 credit card payment to proceed in processing my application and get my credit scores. (I know that federal law mandates the I can get a free credit report once a year). But I made the online payment because I wanted the rate. The next screen showed the loans I was eligible for. There was no 15-year. No 4.0% rate. Only 30-year at more than 6 %. I sent an email, complaining. The next day, the agent called. I complained to him, and he said there was some kind of error — that maybe I put in the wrong information. I am certain that I did not. He said I could still get the loan at the rate I want. I don’t believe him, and that’s the end of my online mortgage quest. Now, I am checking Better Business Bureau ratings before I deal with any one mortgage company. I have a call into the company that hold my original mortgage on the second home. I suggest we all go slowly and carefully.

  8. Delano says:

    NEW DEVELOPMENT JUS NOW WITH AMERISAVE:

    Just received an email from the agent, as follows:

    “The (message) below has nothing to do with you guys. After a certain time if things are not progressing the banking commission makes us render a decision. Being that we have not proceeded we had to decline the loan for those reasons only. Nothing to do with your guys impeccable credit. We can proceed when you are ready.

    Thanks,…”

    Here is the message from AmerISave that he is referring to.

    “After reviewing your application, we are unable to approve you for a loan program. Thank you for allowing Amerisave Mortgage the opportunity to assist you. Attached is a notice of declination which indicates the reason(s) your loan request could not be approved.”

    (Note: there is no attachment as the message indicates).

    OK. Now, I am really upset. And I probably need to write all this up and send it to Exquifax, Experian and Trans Union, and then ask for
    my free credit report to see if AmeriSave did any damage.

  9. Mick says:

    Can you refinance after doing a modification? We have an adjustable under modification and are trying to refinance now but get denied due to the modification…. Any advice there?


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