Mortgage refinancing is probably the least understood subject among homeowners. After encountering this post you will have a clear understanding of your options because the embedded mortgage refinance calculator will give you the hard numbers you need.
First, let’s talk about the closing costs. In reality, they should be no more that $1700. Any more than this is a bonus for the lender. If you look at Good Faith Estimates (which show the closing cost breakdown) from different lenders, you will notice the same fee categories but different numbers for each. Without exception, high closing costs allow for a lower mortgage rate and a high mortgage rate allows for low closing costs. That’s just how the game is played. During my days as a loan officer, I saw this see saw principle played masterfully by the loan SHARKS that were sitting behind me. Believe me, they were good at what they did.
The sad reality was that even when a client got the best of deals, most of the time their refinance amounted to nothing because Americans have a high divorce rate. You see, a divorce means the house will be sold and a refinance only makes good financial sense when you can own the house for more than 5 years. (It makes you wonder why Hollywood couples refinance their homes at all.)
But with all that aside, if you are dead set on refinancing your home you need to request a Good Faith Estimate from at least 3 sources. Don’t be concerned about whether you are dealing with the actual lender or a broker. A lot of times a broker can find niche loans that can beat out the competition. Anyway, you will notice that one of the closing costs is PMI (primary mortgage insurance). Don’t forget to subtract this from the total and put it in the calculator field marked ‘PMI’. Now take this new total and add it to your house purchase price. (This is called rolling the closing costs into your loan.) Put this sum into the first calculator field marked ‘purchase price’. The rest of the fields are self-explanatory.
As a loan officer I had a peculiar way of losing friends. They would contact me to “take care of them” but then lie about the real value of their home. In doing so, the Good Faith Estimate would be faulty because the numbers that were provided were wrong. You can imagine how tension can break friendships in this kind of circumstance. It’s everyone’s desire to get a good deal on a refinance but save yourself some trouble and provide realistic figures when deciding if a refinance is worth it. Our mortgage refinance calculator is only as good as the data it’s fed.
Here’s a trick to watch out for when dealing with a loan officer. He knows that you will be comparing his Good Faith Estimate with others and he wants his closing costs to seem the lowest. So he will massage the numbers down and add another field labeled ‘POC’ which means ‘out of pocket expenses’. Then he will manipulate this field so that it’s not added to the total closing costs. It’s pretty tricky because you receive an excel spreadsheet showing all of the closing costs but you can’t see that the total is wrong without adding the costs yourself. Do you see why there are a lot of calculators in this blog? If you are proactive about getting to the bottom of things, you have the necessary tools to do so.
There are certain loans that add an element gambling into them. When I was a new loan officer working for a broker, I decided to try out a strange loan from Chase Manhattan Bank. The rate that the loan provided blew away the competition but its approval was contingent on getting the right information from the borrower and fitting a certain Loan to Value profile. Like I said earlier, people like to exaggerate the value of their homes to get a better deal. And the first time I tried this, the borrower gave me some wrong figures. Well, of course the loan wasn’t approved and he lost his $300 application fee. It was awful because that’s big money to a lot of people and the stress kept me from being productive on other loans. This goes to show you that you need to just focus on the vanilla and chocolate loans. Don’t get fancy and don’t risk losing your application fee because you feel a gamble might pay off.
There is a tactic amongst mortgage companies to float loans. This means they offer to refinance your home at a lower than expected rate and they wait for the true index to fall so they can lock you in. Make sure you confirm that the rate they quote you is not a floating rate. You want to compare apples to apples when looking at the Good Faith Estimates and Mortgage Refinance Calculator’s data.
Of course it’s tempting to fall for the low introductory rate but stay away from adjustable rate mortgages(ARM). Typically they balloon on the 5th year of the loan. How strange that there was a refinancing craze in 2003 and a recession in 2008. Seems like whatever can go wrong will go wrong. Needless to say, 2008 was a miserable year for the jobless homeowner… especially if he had an ARM. A lot of people in this group just decided to desert their homes and turn them over to the banks. Their thinking was that it was so easy to get a home loan that it would also be easy to leave it. But what they didn’t know was that some banks force people to make payments even after they leave their homes and give up ownership.
It’s really easy to put up a website and look legit from the get go. A lot of mortgage company startups know how to do the right things on the web but if you saw their physical address, you’d be looking elsewhere. The first mortgage company I worked for was one of those startups and the contract wasn’t rigorously checked. But out of all of the borrowers that approached me, only one took the time to carefully read it. And he noticed that one of the clauses said “credit dental” instead of “credit denial”. He was a CFO of a big company who was about to refinance a huge home, which made it really embarrassing. Anyway, that goes to show you that very few read the paper work before they agree to the terms of a loan. You must read everything carefully because you don’t want to place your well being into the hands of the unknown.