Your Questions About Mortgage Refinancing Rates

Sharon asks…

Future Mortgage Refinancing?

I recently purchased a home and got a great interest rate. I am stuck with a PMI payment every month since I do not yet have 20% equity in the home. This PMI lasts for 5 years, even if I reach 20% before then. If I reach the 20% before 5 years (which I will easily do) I can refinance my loan to get rid of the PMI. My question is, if interest rates are higher in a couple years when I refinance to get rid of the PMI, will I be stuck with a higher interest rate or will they let me keep the rate I have now?

John answers:

No. You will get the current rate at the time of your refinance.

Charles asks…

Mortgage Refinancing?

Is there a cut off point dollar wise as to refinancing a mortgage? I”m currently around $64K with approximately 19 years left. Would like to refi to a lower rate on a 20 year term.

John answers:

The cut off point is strictly up to you and whether or not you are likely to save money over the expected life of your loan. 11 years ago a typical 30 year mortgage had a rate in the 6.75-7.0% range. If you refinance with $2500 in closing costs at 3.25% over the remaining 19 year term of your mortgage you will reduce your payments by about $120 which means your monthly savings would recoup your closing costs in about 21 months. If it is likely you will remain in your loan and in your home for longer than that, it probably makes sense to refinance.


Thomas asks…

choosing a mortgage (refi)?

Okay….I have a house I purchased in 2009. It currently has a 30 year mortgage which was refinanced in Dec. 2010 at 4.25% (when I purchased in fall of 2009 it was at 5.5%).

I now have two offers to refi again as the rates have dipped down. I was looking at changing it to a 15 year mortgage instead of the 30 year mortgage it is currently and can pick from two different offers two different companys:

1. 3.0 (rate-15years) 396 total loan fees (includes everything)
2. 2.62 (rate-15years) 1275 total loan fees (includes everything)

I will likely be there 5-10 years more…

The house appraised 5,500 less than it did when I purchased it in fall of 2009 so I need to wait out the prices and I like where I live. :) It is a single family home in a working class neighborhood in a university town in Central Illinois.

Your help is greatly appreciated!!!!!!
the loan is for 115K

John answers:

Those sound like good rates. Refinancing into a 15 year loan will save you on overall interest charges and help you build equity.

The total loan fees don’t sound high, but since you don’t mention the amount of the loan it is difficult to compare them. Given the time frame of holding on to the loan for 5-10 years, the lower rate and higher fees would be the best alternative, unless your mortgage is for a small amount (about $55,000)

It is always worth shopping around for the best rates. Check with the lender about locking the rates.

Donna asks…

Mortgage refinance interest rate problem?

I am currently on a home mortgage with my mother. I am wanting to refinance and remove my mother and add my wife. I was recently offered a 30 FHA refinance rate of 3.875. I signed all the documents they sent me and I sent them back along with my current mortgage information. I was told a few days later that since I was having to remove my mother from the loan and add my wife that they had to do a full refinance which was different then what they originally had. The refinance load is with a separate bank than my original mortgage loan. Is this true?? Why would it matter what rate I get in that instance where I am removing my mother and adding my wife?

John answers:

If they were aware from the beginning what you were doing (removing mom, adding wife) then whether you call it getting a new loan or whatever, shouldn’t really matter. I guess its possible the person who took the application signed you up for the wrong program, or something, but if they are quoting you a more expensive loan, this sounds like an excuse to turn down your current application, and get you one with a higher interest rate, or more closing costs, or something. I agree with the other responder. If they try to put you in a program with a higher interest rate I’d tell them I was switching to another bank and demand they refund all your money. Best case this is their honest mistake, but its nearly impossible to force them to give you this loan if they refuse, they always have some weasel clause in the doc’s and its not worth the cost and time to sue them. I don’t really think this is a scam, just shoddy business practices but its also fairly prevalent.

Sandra asks…

Mortgage refinancing question?

Would it be worth refinancing a home loan to get a lower rate? We could decrease the rate from 6.5 to 5.5 but it would add $12,000 to my current loan amount. It would remain a 30 year fixed. We’d also get to skip two months of payments (which is actually added into the loan, not really “skipped”); but it’s still money in hand. The current mortgage is less than a year old. Would the refinance be worth it?
I forgot to say, there are no prepayment penalties. And the added money to the mortgage will make the mortgage more than the house is currently worth (though that may change eventually…hope I hope).

John answers:

I would need to know the loan amount before I can answer that.

I will assume the $12,000 is equal to 2% of your loan amount. That is a $600,000 loan amount. If that is correct, you will actually break even after two years.

If instead the $12,000 is equal to 4% of your loan amount, that is a $300,000 loan amount, If that is corrrect you will break even after 4 years.

These are rough calculations. The fianancial purists will note that I did not consider the cost of money in my calculations.

If you plan to keep the loan for longer than these periods you will be money ahead to refinance

If you are planning to sell before then, you will not recover your costs.

One very important thing to keep in mind is that my experience with loan officers is that they often make promises that they cannot keep.

At the sign off the interest rate, terms and fees are often dramatically different and much more than I was originally promised.

Be prepared at the sign off for your loan to go over the interest rate, the terms and fees in great detail.

Do not sign off if they are more than you were quoted by the loan officer.

Also, you mention that this may very near the value of your home.

If the amount of your mortgage is more than 80% of the value of your home you will also be required to get private mortgage insurance. That will often add a cost that is approximately equal to 1% of your loan amount every year. That would put your cost right back up to the 6,5% that you are paying now.

If the interest rate and the terms and the other costs at the sign off are significantly higher than what you were quoted by the loan officer you must be prepared to refuse to sign off and direct the lender to canel the refinance at no cost to you.

Since the loan amount is approximately equal to the value of the house I would be very surprised if there is not a very high premium added for private mortgage insurance that will wipe out the amount of money that you are saving on the interest rate.

The loan officer will not tell you about this. You have to dig this out on your own.

Be prepared to refuse to sign off on the loan and cancel it if it is not what you were promised by this loan officer.

You must be very tough on this.


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