Saturday, September 13, 2008

Waiting to Refinance

I am a huge fan of online banking, especially since my local bank has a nice, fairly easy to use web site. Yesterday I was on there and noticed they had really low rates on their fixed mortgages. There are two loans on my home which were taken out simultaneously. This was back in the free wheeling days of loans with no income verification and the process was to use one small loan as the down payment and the other as the bulk of the mortgage. The larger of the two loans has a good fixed interest rate of 5.75, however, the other smaller fixed loan is at 7.75. One of the items on my list of financial goals was to look into refinancing that second loan.

So, I saw their low rates and gave them a call. The loan officer was great, but the first thing that he told me was that there was a new law enacted three days ago that says that if your home has been on the market you have to wait one year after you have removed it to refinance. My home was on the market from January to June, so that puts me out of the running.

Nonetheless for curiosity's sake we ran the numbers. I could refinance the whole kit and caboodle for their low rate of 5.65%, however, then I would have to add PMI. In addition, they are only lending up to 90% since the whole FREDDIE MAC/FANNIE MAE fiasco, and I would be on the razor's edge of that. (Since housing values are so low right now.) It was possible to do, but not guaranteed. When he crunched the numbers, I would have a smaller payment each month - but then you had to add in the PMI, so my savings might be small for the out of pocket costs of the appraisal and so forth.

We looked at just doing the second loan, but then that would have to be considered a home equity loan which didn't qualify for the really good rates. Again, my monthly fee wouldn't be effected that much at all. The loan officer said that it makes sense to refinance if you can save a half a point or more over 4-5 years. I don't even know that I am going to be in the house for 4-5 more years.

So, I decided to wait. Now that I know the deal, I can watch the market and see where we are in June when my one year is up. I have to say though - what a difference the credit crisis has made! When I bought the house loan officers were stumbling over themselves to give me money, now I actually had one talk me out of it. Shows you how the world has changed.

Photo by: Rustman

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