The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
My odyssey started back in October 2014 and did not end until the end of January 2015. What I thought would be a pretty straight-forward process, turned into anything but.
The Beginning of Mortgage Refinance
I am not sure how or why I decided to start looking into a refinance, maybe I was just looking to cut another expense. The thought crossed my mind in October and I mentioned that I might be looking to refinance to a coworker. Since they had recently purchased a house, she referred me to her lender. I’ll call them Lender A, so things don’t get too confusing. I was looking to eliminate the mortgage insurance from my monthly payment.
Since I didn’t have the 20% down payment when I bought the house, I was required to have mortgage insurance. That mortgage insurance premium represents $300 a month. When I contacted Lender A, they were sure that they could execute a refinance that would eliminate the mortgage insurance. After taking the necessary information for the application, they ordered an appraisal of the house.
I’m not sure what delayed the appraisal, but it ended up taking a few weeks before the appraiser was able to issue their report. The report did not come back as a surprise to me. When we had purchased the home back in 2011 it was appraised for $345,000. This appraisal came back at $340,000. Lender A said that they would be able to refinance using a primary fixed loan for 80% of the value and a variable home equity as the second loan for the remaining balance.
It was around this time that my rate-lock was nearing its expiration. As it turned out, rates had gone down slightly. I inquired with Lender A about what would happen if my rate locked expired. They simply said they would just extend it until my closing. I can’t say I was very happy about not getting the benefit of a lower rate. So, I decided to look around to see if any other lenders could give me a better deal.
Other Mortgage Refinance Options
I connected with 2 other lenders, Lender B and Lender C. Lender B was a little vague at first, so I decided to proceed with Lender C. Lender C was able to offer me a single fixed rate loan for the entire amount. This was much more attractive than the variable rate with Lender A. Once again, I started the refinance process. This was probably around the beginning of December. The process with Lender C was very quick. The appraiser was out in just a few days and we had the appraisal report back shortly thereafter. That’s when a wrench was thrown into the process.
This appraisal came back at $285,000. I tried disputing the appraisal, but in the end, Lender C was satisfied that the appraisal was adequate. Since I owed more than $285,000 on my house, there was nothing they could do for me.
Within the next week, Lender B had contacted me again. I explained that I would only be looking to refinance if I could have one loan with an interest rate of 4.125% or less. I had done some calculations and determined that that was my breakeven point. If I couldn’t get those terms, it would not make sense financially to do it. I also explained the situation of the competing appraisals.
Lender B said that they would order another appraisal, but that if it didn’t come back with a good valuation, that they could use the first one. So, once again I started the process and the third appraisal was ordered. This one came back with a valuation of $345,000. Lender B now is able to give me the final terms of the new mortgage, 3.99% fixed for 30-years. My payment would be going down about $320 a month from what I was paying previously. I closed at the end of January.
Successful Mortgage Refinance
In the end, I paid for an extra appraisal. Lender C credited me back the cost of the appraisal when the valuation came back in too low. I was out the $400 I paid for the appraisal for Lender A because I had decided not to proceed with the loan. I’m ok with that. I have used that extra $300 a month a couple of ways. The first was to plow a majority of it back towards my mortgage. I am applying and extra $215 a month towards my mortgage principal. With that and allocating some of my bonus every year towards the mortgage, I should be able to pay the house off in about 20 years. The remaining $100 a month went to shore up some of our monthly expense items. This should allow me to increase my 401k contributions when my salary review occurs in April.
How are your finances shaping up for 2015?