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Researching A Refinance

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 [3] 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 [4], 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 [5], 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 [5] 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 [6]). If you have any words of wisdom, please let me know either here in the comments, email [7], or on Twitter. Already, jeffrosecpa told me [8] that some of his clients were getting 4.5% 30-year fixed mortgages with 60% LTV… that’s not bad!

(Photo: thetruthabout [9]