My mortgage payment is by far my largest monthly payment. Financial experts that give percentages would say that it is way too much of my take home pay partly because I bought my house back in 2004, bad timing on my part. That was right about at the height of the boom but I bought a house in a good neighborhood that I enjoy living in so not all is lost even though the equity is hiding in some type of witness protection program somewhere.
Initial mortgage situation
I have a friend who is a mortgage broker who I got my original mortgage from in 2004. I had to get two loans since I only put ~ 5% down (no points) and was trying to avoid the dreaded PMI insurance (this was known as an 80-20 mortgage). My initial rate was ~ 5.75% for a 30 year mortgage on the 80% and the 20% was at a higher rate ~ 6.25% on the 20% loan. The payment was a little steep but I could afford it and was a bit tired of apartment/condo living (although I had a blast and now look back in fondness about the lack of maintenance concerns).
My first refinance
Rates came down steadily since I had acquired by mortgage and I worked with my mortgage broker friend to consolidate both of my loans into a single loan at an interest rate of 4.75% in 2009. I moved down to a 20 year loan so cut a few years in the process so it was a big win although I have to admit I hated paying all of the refinancing fees, just a cost of doing business I suppose.
What I am doing now related to my mortgage
I noticed rates got low again and this time I was interested in going down to a 15 year loan in the process (I am currently at 18 years remaining or so). I missed the absolute bottom of the rates since I was not watching like I should have been but I decided to pounce on a rate around 3.5% before rates rose again. At this rate I would end up cutting my loan time by approximately 3 years and saving about 60k in interest in the process.
My mortgage refinancing complications
Cutting 3 years off and saving 60k sounded like a no brainer, so I was all in as we holdem players say. Well not so fast MK. I had heard stories about people being unable to refinance due to falling prices and not having sufficient equity but I thought I was going to be able to safely get the number I needed to avoid PMI. I reluctantly forked over the $370 appraisal fee out of pocked (seems to be the only fee that can’t be rolled back into the loan these days) and hoped for the best. I did my part talking up my money pit of a house and all of the improvements I have done such as a new roof, ceramic tiles, stainless steel appliances, new garage doors etc.. but still didn’t get what I needed. I was appraised ~ 15k less than I needed to avoid paying monthly PMI.
What happens to my refi now?
My mortgage broker friend is working up some alternatives and I am hoping to get the appraisal bumped up due to a recent sale in my neighborhood. If that does not work out I will have to choose between paying approximately 2 years of PMI (an extra $100 a month or so or cut my losses and eat the appraisal fee and keep what I have). Financially I am still better off paying PMI (and trying to pay it off quicker) but I was trying to avoid raising my payment more. Maybe one of the new government programs will help but I am not counting on it.
Typical mortgage refinancing fees (hate these)
Appraisal fee – 370
Application fee – 395
Lender fee – 805
Credit Report – 25
Flood certification – 15
Attorney’s fee – $300 (due to use before discount)
Lender’s title insurance – $600
Title Search – $125
Wire/disbursement fee – $25
Title Examination fee – 75$
Courier fee – 50$
Closing protection letter – 75$
Mortgage satisfaction fee – 75$
Then there is the new accruals for hazard insurance, property tax etc. We are talking about $2900 in fees by the end of it. Seems everyone gets their cut but thats how this game is played and it still works out financially due to the law of big numbers.
What I would do different next time:
More personal research on the initial appraisal to make sure it was possible prior to paying
Consider renegotiating directly with my lender next time although I’ve heard that is not usually as big of a rate savings (but may cut some of the fees)