Mortgage Question

RaceD...I have done this with two loans. One from IndyMac and another with WAMU. They are always pleased to let you know what their best rates are. You still have to do the paperwork. WAMU took me from a 7.25% to a 5.75% 7/27 IO without an appraisal. IndyMac did order an appaisal to take my rental loan from 6.5% to a 5.5% 7/24 IO. It seems that your current loan vendor appreciates your call and will work a bit harder to keep your business.

 

The term was restarted. Don't stress about the fact that the loans were sold. It happens all the time. You did not state why you do not like your current loan. Whats it at?

 

The paperwork is not the worst part. The worst part of a refi is the closing costs, which usually amount to several thousand dollars.

 

Ed,
Definitely talk to your current mortgage holder. I called, told them I was going to switch (at the time I was with Garanty Mortgage) and they immediately put me in touch with a refi officer. They have "streamlined" processes for existing customers. You will still have to get an apprasial, but a cheap "driveby" appraisal is fine, not the fully researched one. Same with closing costs, they will reduce/discount those. I did this over a year ago and went from 7.25% to 5.37% and shortened up my term to 10 years. Like you, I like to pay down extra, but didn't want to deal with the company f-ing it up and not crediting me for the extra principle payments.

 

My mortgage was sold to Wells Fargo and couple of years ago. I called and asked my banker what it would take to refinance down from 8% and he told me the cheapest way to go was to take out a home equity loan which was going for 6.5% (fixed) at the time and just payoff the mortgage with that. NO FEES, NO costs, No appraisal.

I paid off the mortgage with that loan and hold the title to my house. A year later I took out another and paid everything down to 6% fixed. I also shortened the loan by five years without raising my monthly payment. I still get to write off the interest paid too.

It's not the lowest interest rate I could have gotten but when money gets expensive again my rates won't go up.

DJ

 

There are really 2 answers for your question:

The first, is re-financing - This can be done by a streamlined refinance with the current lender or by conducting a full refinance process elsewhere. Refinancing is expensive!!! Most of the time it involves an appraisal (especially if you're taking more $ out), abstract & title search fees, taxes on the note, etc.... Streamlined refinancing is quicker and less involved, but....it still involves paying off the original mortgage and obtaining a replacement mortgage. Definitely more expensive & usually more time consuming than simply calling up the credit card co. in your example.

The second is what's called a rate modification. This is more similar to your calling the credit card company example. In this process, the original mortgage you have is kept intact, except for the interest rate. However, it requires several conditions to be met. The biggest difference between the credit card and a mortgage is that mortgages are usally sold by the originator to the open market (fannie mae, freddie mac) and are not held in a portfolio by the original lender. If you have a mortgage that was packaged and placed into the marketplace, readjusting the rate is very, very difficult. Usually, the servicing arm doesn't have the ability to change the portfolio outstanding. Additionally, the mortgages are sold as securities in packages. If, however, your original mortgage is being serviced within a lenders own portfolio, and is not in the open market, they have the ability to modify the debt simmilar to the credit cards.

I'm simplifying this to save space, but that's the high-level view. If you have specific questions let me know.

 

Ed,

Having a lender do a rate modification is tricky at best. They know that refinancing is expensive for you to go elsewhere. They also know that a streamlined refi within their organization will generate at least some fees for the lender. It really depends upon the lender (bank, institution, private lender, etc...)

That said, if you have a good relationship with the lender, you need to position it with the following:

If your current loan is at 7.75%, if you paid it off completely with a refi elsewhere, the lender would be relending those $$'s at current rates (for example 6%). Say they lower your rate to 6.5% (again, just an example). In this scenario, the lender would still generate an above market return than relending, you get a lower rate. Although you may not get as low of a rate than if you refi'd, your cost of this transaction is far less (should be zero). You merely need to calculate the additional cost of borrowing (in this case the 1/2% higher rate) at the slightly higer than market rate for the number of years you anticipate owning the property vs. the cost of refinancing and the savings associated.

Also, add to the conversation your payment history (if it's good) and how even though they are still generating an above market interest rate, they still have excellent credit worthiness and equity in the loan.

Strike a deal whereby they still generate an above market rate and you save some interest. If they understand, they would be foolish not to do so.

 

2013 is still several years away. What if you could lower your interest rate, maintain the same payment and shave off a few years untill payoff to 2009? If, from the new earlier time of payoff, until 2013 you made the same payment - now only to yourself (investment/savings) instead of to the lender, then let it grow until 2020 you'd have a lot of $$ in 2020 that you otherwise wouldn't have!

I won't get into the payoff early vs. using the $ for other investments subject too much here because you can read many opinions on that on other posts. But that should also be considered if you are able to lower your interest rate. (ie. current rate 7.75% w/ investments yielding 6.75% = try to payoff early.....however, if you can get your rate down to 6.25% w/ investments still yielding 6.75% = don't payoff early-instead put into investments.)

 

You're welcome!!