Mortgage Refinance - Mortgage Company Called and offered it?

[MikeDVB]

Hey guys .

I'm really not 'hip' on loans/mortages/etc. I know I have one on the house and was assisted by my Realtor at the time. I did leave a message with her to ask if I could chat with her for a few but she's a busy woman so I figured I might ask here too.

Our mortgage company called us and said something about new FHA guidelines which resulted in the possibility of reducing PMI [Private Mortgage Insurance] on the loan. It would take me from $240/mo to $160/mo on the PMI which is a fairly large savings. They said they will cover a month of our escrow and all fees related to processing the refinance the only 'catch' seems to be that FHA will only pro-rate 52% of the $3500 we rolled into the loan for the PMI premium up-front towards then new FHA $3500 fee - so we would add about $1600 on to the loan amount to save ~$80/mo in PMI. Another part of this is that we would go to 3.85% Fixed from the 4.0% Fixed we are on now saving us an additional few dollars per month.

We pay around 20% extra towards principal every payment so I'm not really looking to 'cut' the payment as much as 'shortening' the loan by paying off the principal more quickly. Any decreases in the actual cost would translate directly into additional principal paid per month.

I'm just not sure if this has a 'gotcha' or if I'm somehow going to get myself into something I don't want. I'm just not sure if they really are 'looking out' for me or if this somehow allows them to pad their pockets more. I.e. I don't want to sign up for a refinance that looks beneficial when in reality it's a terrible idea.

Any advice on this is appreciated. I figured I was going to sit down with an amortization calculator and compare the loans and payments to see how much of a benefit this would be if it really is above-board with no 'gotchas'.

 

[hoosierdoc]

What are closing costs to the bank? That's their incentive to have you do it. What are your costs and how long does it take you to recoup those by the savings? If it's shorter than you plan to be in the home, and you have the $$ to do without rolling closing costs into loan, fire it up!

 

[MikeDVB]

I asked about closing costs - they said they would cover all costs and even cover 1 month of our escrow [around $250]. The only *real* cost to this that I can find is that we only get $1820 back of the original $3500 we paid FHA PMI and then a new $3500 rolls into the new loan resulting in a total principal increase of $1680.

I can also along the way stretch the loan back from 29 to 30 years for an additional $20/mo savings [but I would keep paying the same amount so I would end up saving interest and have a shorter loan even if I stretch it out].

I'm really just more concerned that there could be a hidden 'gotcha' or something. I.e. there is something in this for them and they're really doing it for them and not me [and I would have to believe that's how most businesses operate - they usually don't go out of their way to do something unless it benefits them].

I get offers *similar* to this from other lenders in the mail all the time and I toss them but this is *my* mortgage company calling and making the offer. I see why other companies would do it - they get a new loan in their portfolio but I'm not sure why my company would do it.

 

[HoughMade]

I agree with Doc, but would add that with the amount of principle payment you are making, how long will it be until you have 20% equity? You can get rid of PMI altogether at that point.

On my first house, I was able to refinance about 2 or 3 years after we bought it and between the appreciation and principle payments, I had 20% equity and dropped the PMI. Between that and the lower interest rate, we were able to go with a 15 year mortgage for way less than $100 a month more than a 30 year. Of course that was in about 2002 and things were different back then.

 

[snorko]

Typically PMI is paid when the loan balance exceeds 80% of the market value. How far off of that are you? It may make more sense to get the loan amount paid down and let ALL the PMI go away.

Mortgage companies make money by doing deals, not from interest. So of course they want to make refinancing sound good.

Reminds me of earlier today when the dealership from which I bought my car called. They said they had several people interested in "my" car (year/model) and wanted to know if I was ready to upgrade. They said they would make me a good deal. I am sure they would.

 

[HoughMade]

...Reminds me of earlier today when the dealership from which I bought my car called. They said they had several people interested in "my" car (year/model) and wanted to know if I was ready to upgrade. They said they would make me a good deal. I am sure they would.

Yeah, a dealership I never even bought anything at has been bugging me claiming that there is a huge demand for 2003 Chevy Ventures (a van I traded in 2013). Um...there wasn't a huge demand for those in 2003.

 

[hoosierdoc]

Funny I just was informed my 2002 escape is in high demand and it can be worth as much as $2000!

 

[spec4]

OP, how long do you plan on staying in the house and are you near a 20% equity position? If you are near a 20% equity position, you may want to look at conventional financing without PMI. Problem is you have to have a good handle on closing costs to see if its worthwhile.

 

[smokingman]

I would wait until you did not need to pay PMI to refinance,especially since you are refinancing at a higher rate that will cost you thousands over the lifetime of the loan.

.15% may not seem like much of an increase,but over 30 years it will certainly add up.

 

[Hkindiana]

I would wait until you did not need to pay PMI to refinance,especially since you are refinancing at a higher rate that will cost you thousands over the lifetime of the loan.

.15% may not seem like much of an increase,but over 30 years it will certainly add up.

UMMM, his interest rate would go DOWN, not up.

 

[smokingman]

UMMM, his interest rate would go DOWN, not up.

I see.I must have misread it the first time.
I would read the fine print,but in that case I would indeed refinance.

 

[rotortech]

I would be skeptical when they say "they" will cover the closing costs. I strongly suspect that "they" will roll it into the principle on the new loan. I wouldn't do it for less than about 2.0% reduction in the APR. Whatever you do, get the good faith estimate in writing from them that details all of the costs and who pays what. You may be surprised. If they won't do a good faith estimate before the deal, then walk away.

I sold mortgages before I got my soul back. It was a dark time.

 

[hysteria]

Did they mention whether or not you'd need an appraisal? It sounds like they may be referring to an FHA streamline refi.
Some info can be found here: Streamline Refinance - FHA Streamline Refinance Guidelines & Rates

Hard to say for sure how good of a deal this is without more info.
Mortgage Loan Officers love to refi existing deals, because they're easy and they get paid commission on closed loan volume. Depending on how the bank/lender handles the loan after consummation will determine what and how much benefit there is to the bank in general.

edit:

I would be skeptical when they say "they" will cover the closing costs. I strongly suspect that "they" will roll it into the principle on the new loan. I wouldn't do it for less than about 2.0% reduction in the APR. Whatever you do, get the good faith estimate in writing from them that details all of the costs and who pays what. You may be surprised. If they won't do a good faith estimate before the deal, then walk away.

I sold mortgages before I got my soul back. It was a dark time.

If it's a streamline refi like I mentioned above, they can't increase the loan balance to pay closing costs. Only to roll in the up front MI premium.
Mortgage lenders are required by law to provide a GFE within 3 bus. days of application.

 

[MikeDVB]

Yes - they mentioned streamlined fha but it didn't come back to me until I read it here. I called my realtor and she said that it sounds like a fantastic idea from a financial standpoint.

We will be in this house 20+ years and hope to pay it off in 12-15 by paying extra principal.

I suspect the loan will pay off sooner than later if we do this.

No appraisal is needed. They said all I had to do was have a credit score over 580. It was 625 when I got the loan last year and has been on the rise.

I owe ~$197,000 in principal on the house which is valued at ~$210,000. We put down $10,000 as a down payment when we bought the house. I'm going off memory - I know we paid something like $9,000 in principal the first year as well.

I am responding from my phone so if I missed any questions I apologize and will address them in the morning when I am at the computer ;-).

 

[ModernGunner]

The 'gotcha' (not really a 'gotcha') is it appears (from what's stated in the OP) that the Lender is getting the $$$ that the FHA previously got. More $$$ to the Lender, instead of it going to FHA / PMI. Increased (albeit a relatively small amount) profit for the Lender.

But, do that with 10,000 homeowners, and that 'small amount' becomes a big cash flow, and big profits.

If the house is currently valued at $210k (and those values change frequently, as I'm sure folks are aware), you'd need a loan balance under $168k to drop PMI.

Of course, never hurts to 'haggle' a bit, if you're up for that, since .15% isn't much of a rate drop, only a bit over 1/8 point. Can always ask if they'll drop that to 3.5% and haggle up to 3.75%. With rates at that level, it's just unfeasible that they'll drop it 2%, as someone else suggested above.

 

[bigus_D]

Damn Obama and his fiscal policy!!!

sounds like a good deal from here.

it is worth the time to at least get all the info. They really can't stick you with hidden "gotchas" these days unless you are extremely thick.

 

[hoosierdoc]

we have a 15-yr mortgage. Our principle payment is considerably higher than the interest payment every month and has been since inception. Completely opposite from our first house when I had a 30-yr mortgage. Loving it. The rate of 2.75% helps too

Consider a 15yr if you can. Salin Bank has a 3% 15yr note right now.

 

[smokingman]

I owe ~$197,000 in principal on the house which is valued at ~$210,000. We put down $10,000 as a down payment when we bought the house. I'm going off memory - I know we paid something like $9,000 in principal the first year as well.

You should calculate when you are no longer required to have PMI.From just the above statement I know you are half way there already(exact math 210K value 13k from purchase price,10k down,9k in payments=32k You have 10k left to pay break below 80% LTV).
When your loan drops to less than 80% LTV you no longer are required to purchase PMI insurance.Every person with a mortgage should know the date this will occur.It will save you a small fortune,and few banks will ever tell you about no longer needing PMI.

http://www.engindiana.com/products/pmi.php

 

[Tactically Fat]

Funny I just was informed my 2002 escape is in high demand and it can be worth as much as $2000!

Some may be worth $2k.

Yours... Eh... Not so much.

 

[hoosierdoc]

Some may be worth $2k.

Yours... Eh... Not so much.

You're thinking of the cosmetically challenged highlander!