I'm a mortgage banker, and I'm not soliciting business. I'm busy enough as is. But I'll give my insight. I've been in the business since 2002. I've worked for a "retail" lender, a mortgage broker, been a mortgage broker, and now work at a mortgage bank. When buying a house, I would highly recommend going with a mortgage bank, because all they do is mortgages. That's how they keep the lights on. Mortgage brokers do not get better rates. Big banks/retail have "loan officers", but that guy may have 6 other jobs, and there is a good chance your loan may not close on time. But this thread is about refinancing.
First and foremost - Every person's financial scenario is different. What works best for the secretary at your wife's office may not be what's best for you. It's ok to get advice from people, but be sure to make your own assessment. Ask your loan officer to explain why they're offering what they're offering. It should be based upon the previous conversation they had with you and not a quick response to, "What's your rate?" If you're getting a mortgage from Joe's Quote Me A Rate Shack, there is a good chance you're leaving money on the table somewhere. One of the biggest things I run into is a borrower telling me "I'm not going to (many times it's Pay Mortgage Insurance) b/c my co-worker/dad/uncle or other non-mortgage person told me that nobody should ever pay mortgage insurance (just an example)" OR, "My parents told us to get a 15 year loan because that's what they just did...." To which I might respond, "Yes, but your parents are nearing retirement and you're 26 years old with a baby on the way. That extra cash you'll be spending on the monthly payment may serve you better in other ways (put into retirement, put into other interest bearing account, use it for that baby instead of higher interest credit cards, etc). Everybody's situation is different. There is no one perfect mortgage for everyone.
Next, forget about the internet. I have heard/seen many a great quote/estimate, but have heard of few actual closings with the same terms, and seen it with my own eyes even less. If you're shopping for a new Leupold on ebay, you can be rest assured the one that is half the price of everyone else is not real. Right? Same applies to getting a mortgage.
Next, be ready to pay for the service being provided to you. Everything costs money. Nothing is free. There are a million different ways a mortgage can be packaged up with a pretty bow tied to it and presented to you as if you're not paying the fees. You are always paying the fees. Somehow. Typically, a "no closing cost" loan carries a higher interest rate than one that does have closing costs. These are more popular with higher ($250'ish plus) loan amounts as it's easier for the mortgage company to cover the fees. When they "lock" that rate in, they are entering into a futures contract to sell that loan, in some way, shape, form, or fashion, on the secondary market (more on that in a minute) at a set price. The mortgage company may get 3% of the loan amount when they sell it, and pay the loan officer 1% (at a mortgage bank). At a big retail bank, the loan officer likely gets .1 - .25% of the loan amount plus a crappy salary. They do not have enough incentive to put up with the hassle that is the mortgage business. (more on this too) Back to "no closing costs". A company can also offer the no closing cost loan and charge an extra .25% - .5% on your interest rate so that they get an additional 1% - 2% paid to them, which they apply to the fees. The fees do exist. Figure out how long you think you may live in the home, and compare the amount of extra interest you'll pay over that period to the fees that were paid for you. The no closing cost/premium rate deal is great if you're only going to be in the home for a few more years. Depending on your state, around year 3 it starts to be better to just pay the fees.
Paying the fees can be done 3 ways. The mortgage company can pay them, via your higher interest rate (hence, you pay). You can pay them out of pocket at the closing table (you pay). You can roll them into the new loan amount (you still pay). The 3rd option is always most popular because most people are either going to be in their home for a few more years or 10 more years. The closing costs amortized over 10 years usually isn't enough to make people want to pay out of pocket. But each person's situation is different.
There is no golden rule that says if you can drop your interest rate by 1% or more you must refinance. It's not that simple. The basic assessment should be, divide the closing costs by the difference in Principal and Interest + Mort Ins (if applicable) from current loan to new loan. The figure you get will tell you how many months it will take you to break even. If you feel that you will be living in the home for longer than that time period, you may want to start considering refinancing. If you're not, then you're wasting money for the sake of being able to brag to your neighbors that you have the lowest interest rate ever. And there are people that do that. A more complex and accurate way to look at it is to look at the loan in terms of "cost". The "cost" of the new loan is the fees plus the interest you will pay over x time period. Compare that to the amount of interest you will pay over the same amount of time on your current loan. If the number is lower for the new loan, then decide if the pain in the ass that is refinancing is worth it to you.
I would start with calling the guy back that did your original loan, if you thought you received good service/fair deal, etc. They may give some kind of break on fees or something to returning customers. Ask around, get other quotes, but be wary of things that are too good to be true.
I have heard of many of the big banks that bought your loan, after your brother-in-law's neighbor's best friend's guy he knows from church did your loan originally, have contacted existing customers with great pay history, who have a low loan to value ratio (70% or less) and offered to drop the interest rate from x to x, no appraisal, no new title commitment, no income/asset docs, nada. This was more prevalent last year as rates dropped into the low 3's. This is the only positive thing I have ever heard coming from a big bank...ever. If you haven't refinanced already, have a low ltv, and a great pay history, I would call and ask about it, but prepared to speak to an idiot.
Mortgage Mythology:
- It's easier for me to refinance my loan using my current loan servicing provider. False. The new loan is just that. A new loan. Regardless of where you get it, it has to be done all over again. And in all actuality, that big bank servicing your loan will be a much bigger pain in the ass to deal with. I know this goes against the paragraph above, but those instances were only going on during a certain time period. I wouldn't expect to get that deal.
- It is bad when a mortgage company sells my loan. False. They all get sold in some way, shape, form, or fashion. Billy Bob's Mortgage Bank may do the loan, fund it with their own money, then sell it to Chase before you make your first payment. This is the most common way. Chase may service the loan for 3 years, but they will put your loan into a gigantic package of other loans and "securitize it", via a Mortgage Backed Security, thus selling the underlying asset. The value of that pool of Mortgage Backed Securities will be traded in the open market like stocks/bonds. (I'm over-simplifying this because it's a really long explanation). In essence, this replaces the money which that institution has loaned so they can make more loans. Billy Bob's Mortgage can only fund so many loans before they have to gas up the account again. The mortgage banks make money on the "origination" of the loans, and the big banks make their money servicing the loans. It's more cost effective for Wells Fargo to simply buy the loans from a reputable Mortgage Bank than it is for them to originate them in-house. See what I said above about the loan officer's compensation at each institution. That is why the level of service is different.
- I require/demand that my mortgage be held by the same institution that I know, love, trust because if it gets sold and the place that bought it goes under, they can call my note due. FALSE. If you got a conventional Fannie Mae/Freddie Mac mortgage, there is nothing in your closing package that says an institution can call your note due without just cause, and the main just cause would be if you weren't paying the bill (they can also get you for fraud). I know the guy posted that he knows several people that this happened to, and I would highly recommend telling those people to get a lawyer. But in the grand scheme of things, even though your loan is a liability to you, it is an income producing asset to someone else. If an institution fails, it will be auctioned off just like all of their other assets. And the terms cannot be changed. There are more regulations than you can imagine that protect you from this.
--- In other words, there is no benefit, besides convenience maybe, of having your loan with the same institution for its duration.
- I am a Veteran. The VA loan is best for me. Not always true. VA loans are very expensive. There is a huge VA Funding Fee on the front of it (over 2% of loan amount). That is reduced on a refinance, but be sure to add that to the fees when doing your comparisons.
- I have 800 credit and have always made my payments on time, ergo I should not be subjected to all of the pesky "qualifying" crap. False. Unless you got your mortgage within the last 2 years, i can assure you this one will be a bigger pain in the ass to get. It's best to just give the lender what they ask for instead of debating with them, because at the end of the day, it doesn't really matter what your opinion is on underwriting requirements. This is a harsh reality that many successful and/or older people have a hard time grasping. It is a tough lending environment still, and your lender is likely having more headaches with your loan that you are. Work with them, and life will be easier for both of you.
- I shouldn't need to get my house appraised again for a refinance. FALSE (imagine I'm screaming this). Bad appraisals was a big part of what got the mortgage industry into its current mess. Florida held the title of #1 mortgage fraud state in the nation for many consecutive years. They're values were hit hardest. If you live in Florida, just be happy somebody is willing to lend you money. The appraisal and the pictures of the inside of the house are just a part of the deal (not trying to bag on the Florida guy that didn't like having pics of his house taken, just making a point)
There's other stuff I could talk about, but I've spent considerably more time on this than originally planned. If I'm dicking around on snipershide instead of working, I prefer to be looking at gun porn, and not talking about work! Take the information for what it's worth to you. I hope it helps you in some way. Also, if you're a loan officer or employee of a big bank, I am in no way trying to offend you. This is simply my point of view.
