Refinancing My Mortgage: Starting the Process
I’m still going through the process of refinancing my mortgage. At this point, I’m hunting around trying to find a good rate, without huge closing costs. As this is my first home and first mortgage, I’m also learning about the whole refinance process.
Necessary Information to Refinance
My first question about refinancing was what kind of information do I need. Here is what I’ve gathered:
- Mortgage company – The company that current has your loan. Often times this is not the company you originally signed with, since mortgages can be sold.
- Principal balance – The current amount you owe. A significant portion of initial mortgage payments go toward paying interest and not the loan balance. Sometimes it’s a little shocking how little this number changes despite large monthly payments.
- Mortgage rate – This is the rate of interest you pay the lender.
- Monthly payment – This is the hefty amount you pay every month.
- Loan number
- Current home value – This is a difficult one, especially with today’s market. Fortunately, my real estate agent is also a very good friend. He was able to pull information about nearby houses that are for sale, or that recently sold. These comps (comparables) help determine the estimated value of your home.
Refinancing my Loan
I began by calling my current mortgage company. The company that currently has your loan wants to keep it because you are paying them interest each month. Often, that means they will be more accommodating when you are looking to refinance.
I asked the loan officer about “modifying” my loan. As I understand it, modifying the loan is basically refinancing without closing costs. They let me know that is only an option when I’ve undergone some hardship and I am in danger of missing payments. I guess I could stop making payments and then modify, but my credit score would tank. Probably not a good idea.
Next, we began to investigate refinancing. Ultimately, he offered me a 5.125% interest rate. That’s about 1% better than I have right now and it would lower my monthly payment by about $180 every month. But here is the catch: there is a $395 application fee which includes an appraisal (fairly standard rate). Next, there is a $550 processing fee once everything is set. And finally, there would be about $4,000 in closing costs. That means about $5,000 dollars all together! It would take over 2 years before this deal began saving us money. I checked with some friends and they assured me I could do better.
So the hunt continues.
What do you think? Any tips for refinancing?
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5 Responses to Refinancing My Mortgage: Starting the Process
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December 22nd, 2008 9:32 am
I don’t have any tips on refinancing (sorry!) but I have learned a way to build equity more quickly. If you pay half of your payment amount every two weeks, it works out to an extra mortgage payment every year, and that extra money goes to equity. I have set it up with my mortgage company to automatically withdraw (although I know thats not for everyone – another good option is online bill pay through your bank). I am looking forward to hearing how your refi goes!
December 22nd, 2008 9:03 pm
We are also talking if refinance will make sense for us.
I’m curious how many years you have been living in your house? and how long are you thinking about making next mortgage for? (30year? 25, 20, or even 15?).
We have been in this house only 3 years so far, and we paid for points to make our rate down to 5.5%, so will at least need to wait 6 months to make it even.
We’ve also started every two week payment that Blayne wrote this year. My in-lows told us it will end up paying less interest over time. This will make our payments from 27 years down to 16 years.
At this moment, we are wondering if we should keep our current mortgage, and pay off extra to principle when we can since our goal is to pay lowest interests at the end, while keeping our monthly payment same amount or less. Less monthly payment would be nice, but not sure if that would help us to pay less interests over all. Any thoughts on that?
December 22nd, 2008 10:36 pm
@C, We’ve been in our house for about 3 years too. I’m thinking the next mortgage will be a 30 year. I’ve heard about the payment schedule Blayne mentioned before but never really considered it.
I like the idea of minimizing our monthly bills, but I’m not sure which is better in the long run. Sorry I don’t have much good feedback to add.
December 23rd, 2008 9:25 am
I have been thinking about refinancing my loan, the information you have posted is quite encouraging for me to go for it, Just waiting to gather some more information, I hope people that have this experience would be sharing their views here and that would also be very helpful to know.
December 27th, 2008 11:00 pm
We’re thinking about looking into this too. The catch we’re facing is that we’ve borrowed 95% on our home using an 80 / 15 loan. When refinancing banks want to loan the full amount and don’t want to refinance as another 80 / 15 loan.
Someone told me about asking for a loan modification and even though Ethan’s experience wasn’t fruitful I plan to give it a shot myself. I would ask your bank why they are willing to help out delinquent customers and they can’t help you out when you pay your bills on time? I’ve also heard that you can find a lawyer to try to negotiate a loan modification for you. Of course there’s a fee associated with a lawyer, but it’s often a fraction of the cost of closing costs.