Rates Are Low. Is It Time To Refinance? Our Refinance Story

My wife and I have been shopping around lately trying to find a good deal on a lower rate for our home mortgage.  We’re currently sitting at around  6.5% with our 30 year fixed rate mortgage. We bought our house right before the real estate bubble burst, so the market was at its highest.

Our timing wasn’t the greatest, and we now realize that.  What’s done is done, and now since rates are near 30 year lows, we thought it would be a good time to look into lowering our rate.   We know we have good credit and no debt, so those things weren’t issues.  The only thing we’re worried about is the appraisal.  Who knows how bad the market has been hurt in our area in the last 2 years?  Will we still have enough equity to be approved?

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(Update: There are new options in refinancing and loan modification!  Check out my updated post on the “Making Home Affordable” program that has just been passed.)

Is It Worth It To Refinance?

The first thing we did was to figure out what kind of difference lowering our rate would make, both over the life of the loan, and in the short term. We also wanted to make sure that any fees we paid would be paid back in a year or so just through the lower monthly payments.

Here’s a refinance calculator similar to the one we used to figure out how much we’d be saving. Input your own numbers here to figure out if it makes sense for you to refinance.

After entering our numbers we found that just by going from a 6.5% to a 5% rate we could save over $200 a month on our mortgage. Since we want to pay off the mortgage early, that extra $200 could go towards the principle, so not too bad!  We just had to find a 5% rate where the fees were low enough to make it worth our while. If the fees were too high, and the payback period (the length of time it takes to pay back the fees through lower payments) was too long, we wouldn’t be doing it.

Let’s Call Our Mortgage Company First

We started our search by calling our current mortgage provider, Countrywide Home Loans.  We figured that we might be able to just make the process short and painless, and get Countrywide to do a loan modification and lower our rate without fees.  If not, we figured they might at least give us a decent refinance rate with low closing costs.

Boy were we wrong. When I called their “customer service” number I got someone on the phone that obviously didn’t know what they were talking about. Their computer wasn’t working and they couldn’t pull up the rates for like 15 minutes.   Finally after waiting on hold for like another 15 minutes they told me that they couldn’t do a loan modification (no surprise) and then gave me a rate that was around 5.25%.   Not completely horrible, but the fees and closing costs ended up being close to 7 grand!

Of course they shrugged the fees off and told me how they could painlessly roll that 7,000 dollars right into my loan for me, and I wouldn’t have to pay a thing out of pocket!  Of course they don’t tell you that that 7 grand will quickly turn into almost double the amount in interest charges.  No thank you!

I politely declined Countrywide’s offer and told them I was sure that I could get a better rate somewhere else. They said that if I did get a better offer to come back with the good faith estimate and they would match it.

If they knew they could do better than they had quoted me, why couldn’t they just give me a better deal up front?  That made me a little angry.  Now I was determined to find a better deal so that I could drop these guys like a bad habit.

Getting Quotes

I decided that it was time to get some quotes from other mortgage companies, brokers and banks. Here are a few of the places I went to get quotes and information.

I also called several local banks here in Minnesota to get rate quotes over the phone.  I called several of the biggies including Wells Fargo Home Mortgage, US Bank Home Mortgage and Guaranty Bank.

I wasn’t overly impressed with what I was finding.  The rates were good, at around 5%, but the fees everyone was asking were just too much.

Getting Helpful Mortgage Advice On Twitter

After getting several quotes, but nothing that I wanted to sign on, I turned to twitter.com to voice my frustration to my 1300+ followers.  I mentioned how I was finding tons of good rates, but too many fees.

After sending my tweet, I quickly heard back from several users suggesting I contact a couple of mortgage twitter users that they’ve talked to and been impressed with – for their advice.

I started tweeting with several mortgage professionals that were able to explain the mortgage market to me a bit better. You might find them useful too, so here they are (most helpful folks are bold):

I’m  sure there are a ton of other helpful mortgage twitter users out there, and I invite them to leave a comment with their twitter id below.

Locking Our Rate

One of the twitter users, @mortgagereports was a mortgage broker, and after talking briefly he had his assistant call me to get my information for a rate quote.

Through him I was able to lock on a 5% rate, and pay $1500-3500 less in fees than the other banks and brokers were asking.   Our payment would drop by over $200, and the payback period for the loan after fees were figured in would be just over 1 year.   I was happy with that since we’re planning on being in this house for at least a few more years.

Waiting For The Appraisal

After signing the paperwork and locking in our rate, the only thing we were nervous about was the appraisal on our home. To get the loan without paying private mortgage insurance we knew we would need it to come in at or near a 80/20 loan to value ratio.   After talking with an appraiser that we had used in the past, we realized that home values in our area have dropped significantly more in the past two years than we had banked on.

Since the home values have dropped so significantly we won’t be anywhere near the 80/20 LTV ratio we would need to close on the refinance.  On top of that we are now in a situation where my wife may be facing a layoff at her job soon.   Double whammy!  We could have closed on the loan still, but with the mortgage insurance it would mean we’d only be saving about $75/month, which means it would take over 3 years to pay back the closing costs.

The refinance is off for now.  We’ll have to try again in a while once the market starts rebounding.  Who knows how long that’ll be!

Have you attempted a refinance recently?  If so, tell us about your experience in the comments.  Were you able to get a good rate? Were the fees low?  Did your house appraise at what you needed it to in order to get the loan through?

Last Edited: 5th April 2012

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  1. says

    I have been following the rates and running the numbers. It is now a good time for us to refinance as well. Thanks for sharing your refinance story and the resources you used, it’s much appreciated!

  2. says

    Sorry to hear this couldn’t work out for you. I know that an extra $200 per month would be great – especially if you could continue throwing it at your mortgage or invest it in an IRA or another retirement fund. But you made the best decision for now. I hope everything works out with your wife’s job!

    Patricks last blog post..Zecco Discount Brokerage Review

  3. says

    Sorry to hear you weren’t able to refinance.

    Our story is remarkably similar… only I waited on hold with my mortgage company for 87 minutes and got ticked and called other banks.

    We just closed on our home re-fi yesterday – 4.875% at US Bank. I am not thrilled with the closing costs – which will take us about 2 years to pay back – but our home’s value did increase enough (we live on a Northern MN lake) to get us out of the PMI we had been paying. We’ll be saving about $200 a month, which I think we will channel into a Roth IRA. We’re not planning on leaving here anytime soon, so it is a good move for us.

    Keep a watchful eye on the housing market and interest rates, and you may be able to refinance later.

    I’m sending prayers that your wife doesn’t get laid off.

    Christinas last blog post..Free Gum From Trident

  4. says

    I tried to do the Loan Modification with HSBC but they refused to do it on my type of loan…i.e. a normal 30 year mortgage lol.

    Annoyed the hell out of me! They would rather lose the loan to refi with another company then just knocking half a % off?

    Not even sure why they can’t do a refi for cheap? Hire in house counsel, buy a title search company and go for it!

    My Journeys last blog post..Sometimes You HAVE to Ignore the Right thing to do! I Cancelled my Bank of America Credit Card Today

  5. says

    I’m sorry to hear that it’s not working out for you, but to make you feel better, my wife and I are waiting it out as well. We were lucky to get a rate of only 5.875 when we bought our house, so rates aren’t quite low enough yet to get us a reasonable payback period for the closing costs.

    I will be praying for you and your wife as well.

    Nelss last blog post..The Really?!? Weather Edition

  6. Esther says

    I follow Dan’s tweet and found your blog from there. We bought our house 3 months ago, so I hope we won’t be faced with the appraisal problem. We’re in Shakopee too! I even know whereabouts you live (That architecture is so unique! My husband is going to be jealous!). And yours is the first Christian financial blog I’ve found. I’ll have to check out more of it.

  7. Scott says

    The best way I have found to keep the mortgage originator honest is to sign up with http://www.closingcostfax.com. This site provides you with all kinds of great information to negotiate your closing costs and can compare your Good Faith Estimate to your HUD-1 settlement sheet to make sure you were not overcharged for closing costs. If you were overcharged the software details exactly where your cost were inflated. Check it out.

  8. George says

    I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  9. saint seven says

    Hey Pete,
    I just refinanced my place in bloomington and reduced my monthly payment by 20%…over $250/month. Now, I had heard that home prices in bloomington had declined more than any other area in the twin cities.. perhaps just hearsay… but I have a guy here in the twincities who has done my refi and many other mortgage deals for evergreeners, and his appraiser was very honest. Our appraisal came back at 80/20 LTV and so we said “bu-bye” to PMI. It is important to note that since we purchased the house 5 years ago, we have updated many areas inside and out, including most of the major mechanicals. Perhaps that helped the appraisal. But perhaps having the right people working for us also helped. If I were you, I’d get a second opinion on your place and not give up until you get the appraisal back. I know you probably don’t want to waste $350 on the appraisal if it comes back negative… but hey, you have to spend money to make money. The other two evergreeners I know who just closed their refi’s @ 4.75% like I did are also very happy with their new payment.

    • Steve says

      Great article! I was wondering where your friends got their loans at Saint Seven? And any ideas of the closing costs? Any input is appreciated! Thanks All!

  10. says

    This was such a helpful post. My husband and I have been kicking this idea around also, but now is just not the best time for us. It’s great to be informed.

    Mommy Crackeds last blog post..Somebody Call The Waaahhhhmmmbulance

  11. says

    Great article Pete. I really like the personal touch and twitter contacts you put in there (looks like you saved alot via Twitter!). I actually wrote a post on this topic for a friend who was looking to refinance and even before you look for the best rates/fees, you need to make sure you have good credit and decent equity in your home. Otherwise most lenders reject you. I sent your article to my friend and he will be getting in touch with the brokers you mentioned here.

    Andys last blog post..US Automakers Bailout – A Bridge to Bankruptcy or a Road to Salvation

    • says

      I’m glad the article was helpful. Through this, and other recent situations I’ve found just how helpful Twitter and other social media can be. Good luck to your friend and their refinance!

  12. says

    When we refinanced in April, 2009 I found our mortgage broker through the Zillow Marketplace. Even though he was several states away, he was awesome to work with via telephone, email, fax. Much lower fees than I found anywhere locally, and I was so lucky to get a 4.5% fixed rate (albeit 30 years).

  13. Tom Felten says

    I have a story to share that is probably a microcosm of what is occuring throughout the country but I figured I would throw it out there to share……
    We purchased our home here in Millersville Maryland in September of 2005 for $735,000 (interest rate 6 1/8). This was certainly the peak price paid for these homes and as a benchmark, the neighbors next door and others in the community purchased nearly similar homes for approximately $330-380K in 2001 (The couple we purchased from walked away with a $360K check and purchased this home new in 2002)……
    We put $100K cash down when we moved in (this was hard cash not from a pre-existing home sale as this was our first home), and took out a 2nd (line of credit) which we have paid off completely.
    Also, our taxes and insurance since we bought so high are double all others in the neighborhood (neighbors pay about $3K annually and we pay $6K). The county has a law whereby they only raise taxes for existing homebuyers 10% of the total increase in assessment, therefore the new buyers shoulder the increase and you can probably imagine that things are upside down now; whereby during the boom the appraisal exceeded the assessment and now the assessment is much higher than the appraisal (of course since the assessment is what the county uses to tax)!!!!
    We have decided to refinance at 5.375% but not without a lot of out of pocket costs. The appraisal come in at about $108K less than we purcahsed the home 4 years ago, so given the 80/20 LTV ratio, (since we owe $548 remaining) we are winding up having to pay $20K toward the principle out of pocket to finance 85% of the now $622K value which is $528K…….
    The good news is that we will be saving about $600 monthly as the old PITI was $4,200 and the new PITI is approximately $3,600.
    I had a hard time throwing that $20K out there and of course the unrecoverables of about $5K and the “pregnant” escrow of about $7K which I hope to get back, particularly since most neighbors refinanced about $290K @ 5% and I am refinancing almost double the amount, paying double the taxes and have over $200K of my own hard earned cash in this home (put a great deal of personal cash into the home and bought my way into a non upside down scenario), but this is really a microcosm I believe of what occured in this country due in large part to people borrowing money they didn’t have hence facilitating all of the greed on Wall Street and the derivative swaps which occured!
    In the meantime, I will just keep trying to save cash so I can put my kids through college, and congratulate my neighbors who will have a much easier and less stresed time doing so because they purchased the same asset only a few years prior

    • Tom Felten says

      A couple hours before closing they threw out a MI requirement! I am convinced that there are so many people out there just trying to prey for your money! I knew my REFI to beg to ONLY have to pay 2/3 MORE the mortgage than my neighbor (having moved in 3 years prior) pays instead of about 75% more, was too good to be true. I am just disgusted at the system, the wolves and all the greedy people that want more and more of my money!!!

  14. Larry says

    I refinaced with a credit union and they blew the banks offer to pieces, I got a 15 year fixed at 3.14 percent!! and also doing biweekly payments to save even more!!! deifinately check your local credit unions, the banks are out to make more money!!!!

  15. CJ says

    I have lived in my home for 3.5 years. I am currently waiting for my appraisal (and biting my nails, since I can’t afford to lose the $300 fee). I am at 5.75 the new rate will be 4.87. I decided to go with a local Credit Union when Bank of America (they have my current loan) told me they were swamped and would call me back in 60 to 90 days!!! (Why – because the rates are expected to be higher then?) Anyway, the closing costs for me are only about $3000.00. My payment will go up $20/mo but I will drop from a 30 to a 20 year loan. I will have PMI, but was told I could get a quote to pay it in advance for about $1500.00. (Why didn’t Countrywide tell me that years ago? – BAC bought my loan from Countrywide). That will free up about $30 – $40 a month which I plan to put right back into the payment.
    Wish me luck!! I have a lot of friends praying that my appraisal will come back alright.

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