Newbie Help - Refinance or not

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Hi there,

This is my first post, so hopefully it is not something has been previously addressed. I did do a search first. I am in the process of a refi, and I am starting to have second thoughts. Initially, I was going to refinance my 5 year ARM (which was floating at 2.875%) to a 15 yr at 2.75%. It would have cost around $5K in closing costs, but I would be locked into a good rate for as long as we stay in our home. Unfortunately, it fell through due to some issue with our condo and it's status as "mixed use" which is an issue with some lenders. We have very good credit, solid income, and 25% equity, so we qualified for the mortgage easily with good rates.

At the advice of a RE Agent, I was referred to another lender, but rates were slightly more expensive. I got locked at 3.25 with no points ($4K in closing costs), but I am now wondering if it makes sense to refi into a higher rate. I realize that a big factor is how long we plan on being I our condo. We have no plans to move soon, but it does depend on my job and son's school decisions. Currently, our condo is very convenient to both my son's nursery and my wife's and my job. It is enough space for us, and I love the prospect of paying it off and retiring when I am in my 50's. With that said, I would consider moving if work or school situations changed. Good public schools a limited in San Francisco (where I live), so I could envision a move to the burbs one day if we get stuck in a crappy city school or we don't want to drop $20K annually for a good private school. I can fortunately afford it, but it pains me to pay that on top of $10k in property tax annually honestly.

Any advice is appreciated, but the big question is does it make sense to refinance to a higher rate if you don't know how long you plan to stay? My ARM is also indexed to the 1-yr CMT, so it should be below 3% for the next few years. Thanks in advance, as I will likely close on the loan in the next week and a half.

Prince

Member Summary

I decided that I should probably add a bit more detail. My current mortgage payment is around $2950 with 24 years remaining, but it is a floating rate with annual resets. Last reset was two weeks ago. My new mortgage will be fixed at atound $4250 for 15 years. Balance on the loan is around $615K which is considered high value conforming by Fannie standards for SF. Rates are slightly above regular conforming, but they are not in jumbo territory.

That is a lot of money for a condo, glad I don't live in SF.

tennis8363 said:   That is a lot of money for a condo, glad I don't live in SF.

OK. Don't disagree with you on the lot of money or about you living here either, but any advice on whether the refi makes sense??

The RE agent is a middle man in the transaction who probably gets a kick back for referring you to the mortgage broker while you get ripped off. You should try to do a refi with no closing costs. Cashcall might be a good option, search the threads on this forum about them.

here's a refi calculator that can give you more info as to if the upfront cost is worthwhile
Zillow Refi Calculator

I know that you get better rates for a primary residence, not sure if that's the reason for your higher rate. But it doesn't sound like it from your description.

However, I am currently starting a refi (in LA). The rate I was quoted was 2.75% for 15 yrs, no pt, no fee...

Some more details about the "mixed use" might be helpful.

I don't know why you used an RE agent. Just use bankrate.com and similar services to find a low/lowest cost refi. I think your rate is a little bit too high and agree the RE agent is getting a kick-back which is bumping your rate a bit.

It is complicated, but here you go. My building is attached to a market/commercial that makes up the majority of our space. Despite being the preferred lender and servicing 80 pct of the mortgages in our building, Wells Fargo decided during a recent resale, that they did not want to lend on our building and put us on their do not lend list. By most accounts, it is an asinine decision since the condo has its own HOA, but that's what happened. I was aware of this, so I avoided Wells during my refi.

During my first attempt to refinance, this issue came to up right before close. The lender said that their "investor", who I later found out was Wells, would not purchase the loan. My broker looked for other lenders, who he warned would have higher rates, but no one would lend on it. At the advice of my neighbor, who was the one that was selling when we first got blacklisted by Wells, I asked his agent about lenders where she has had success in our building. She gave me three names, and I went with the one that seemed to be most competitive. They are also the 2nd or 3rd most popular lender in the Bay Area (behind Wells), so I don't think I am getting fleeced. Even they told me, that they have programs with lower rates, but they don't apply on my building. The loan that they are steering me into is their "proprietary in-house product".

As for closing costs, they will probably be closer to $2K when you take out the prepaid interest, and that seems inline with other no point mortgages (such as those on Amerisave). The rate is higher, but again - I dont know that I have much choice on that. I imagine one concern is that a loan can't be sold to Fannie with more than 30 pct commercial, and that is how Wells and some others are viewing our building. I warned you that it was a long story.

Sorry if this is OT, but won't all of this make it difficult to sell when/if the time comes and you want to move?

It is not off topic, and I had the same thought myself, but I eventually decided that it wasn't an issue. SF is kind of unique in that many places are mixed-use, and that "urbanness" is part of what attracts people. Real Estate is also oddly strong here at the momment. As an example, the two units that sold so far this year in my building went for around 10 pct more than their 2006 selling price even with the financing issues. My appraisal also came in $100K more than I paid, so I feel comfortably above water. Additionally, I expect that Fannie will eventually loosen up on their requirements, as they have already started on some other condo restrictions like number of investor-owned units, etc.

This is a math problem. How long will you be in the condo? If not sure, run a scenario for the two most likely scenarios. Assumption #2 is what you expect for your future interest rates on your current mortgage. Run the amort table with those rate increases (note, I would not expect any signif rate increases for next three years). Then Calc new payment and amort table on the refi'ed loan. Since your refi'ed loan is actually at higher rate than current, it is prob better to just compare amort tables. Remember to drop the upfront (refi fee) in the amort table too. It is likely not clean since you will have two different loan periods and at some point you have secondary incentives to lower payment, etc, so the math may not be cut and dry. Bottom line, the longer you plan to keep the condo and the more you expect rates to rise, the more likely the up front fee is worth it.

I'm in SF too. I just closed on a 30 year through Amerisave from a 5/1 FHA ARM with Wells on an SFR. The new rate was 3.5%m 0 points and .5% in closing costs on a $550k loan. About $11k out the door with pre-pays and impound, so about $4k total after all the normal fees and getting the Wells impound back. Obviously my objective was to get rid of PMI and hedge against fed rate bumps, so my net payment dropped.

When I decided on my loan, I found that all the various "points" are only useful to you if you can't cover the closing costs yourself. Take the higher rate if you can't cover the costs to close, otherwise dial in to as close to zero as you can, with paying no points being ideal. If you can afford to pay points, then do so based on how long you plan to stay, but there is only a benefit to paying points if you plan to not refi for the term or move soon. Be sure to estimate your tax bennies since the government is basically paying you to live in SF if you pay mortgage interest.

Hope that helps, also good luck on the high school lotto! There are good public schools in SF but you're rolling the dice.

I would do it. With all the issues you have trying to refi now I'd hate to think how hard it would be if rates began to shoot up and your back was against the wall.
A bird in the hand...and all that jazz. Save yourself some headaches now.

If you know how to invest cash, then I would recommend a 30yr mortgage instead (provided the rates are somewhat similar). What is the hurry of paying back when somebody is lending you at 3.25%? Obviously, if you are going the extra cash under the mattress, then 15 yr makes most sense.

Lots of good advice here...thank you. I am going to try to stay the course, and complete the refi. It will take around 4.5 years to break even, and 5 years is my average guess on how long we will be living here. I also think in looking through my Good Faith Estimate there are a few underwriting junk fees that I might get them to waive...could save a bit more. Saladdin probably summarized it best. I want to refi, and this lender can make it happen. I'd rather just pull the trigger and not have to worry about finding a lender or rates going up any longer.

As for going with a 30 year and investing, the rate on the 30 is a half APR point higher. Also, I am more comfortable being forced to save via a higher mortgage payment while still having the option to invest on the side if I have funds left. It's admittedly more conservative approach, but I like the forced discipline.

Thanks again, and Happy NY!

Penfed no closing costs 5/5 arm
Look for a better deal, rates will be low for a while

daprincethegreat said:   Lots of good advice here...thank you. I am going to try to stay the course, and complete the refi. It will take around 4.5 years to break even, and 5 years is my average guess on how long we will be living here. I also think in looking through my Good Faith Estimate there are a few underwriting junk fees that I might get them to waive...could save a bit more. Saladdin probably summarized it best. I want to refi, and this lender can make it happen. I'd rather just pull the trigger and not have to worry about finding a lender or rates going up any longer.

As for going with a 30 year and investing, the rate on the 30 is a half APR point higher. Also, I am more comfortable being forced to save via a higher mortgage payment while still having the option to invest on the side if I have funds left. It's admittedly more conservative approach, but I like the forced discipline.

Thanks again, and Happy NY!


Really nice to see somebody read the thread through and (1) decide what he wants to do, and (2) communicate why they made their decision.

Best wishes!



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