Refinancing Questions (FAQ)

I get a lot of questions about refinancing.  Here are the most common questions I get and the answer to them.

When is it worth it for me to refinance?
Determining when refinancing makes sense can depend on a number of factors. The two most important factors are what your closing costs are and what your payment savings are. I have always advised clients that ideally you want to have a break even point of 12 months or less. If you take your cost to refinance and divide it by your monthly savings, you want the break-even period to be 12 months or less. Remember, the more you owe, the lower the change in rate necessary to make it advantageous to refinance. The less you owe, the higher the change in rates necessary to make it worthwhile. For loans over $200,000 a change as low as .25% is typically worthwhile.

Why do I have closing cost on a refinance?
Unfortunately, some, not all of the documentation has to be done over again. This results in costs as part of the transaction. We will review your individual file to save you as much money as possible.  In addition, many clients are opting for our no closing cost mortgage. This option has a slightly higher interest rate; however, there are no closing costs. This allows you to save money without spending money. In addition, should rates drop even lower, you can refinance a second time with no closing costs again!

Can I lock in my interest rate?
On a refinance transaction, before you can lock in your interest rate, we require that your loan application be submitted. In addition, we will collect an application deposit from you to lock in your interest rate and start the application process. When your loan closes, the application deposit is refunded to you. Should your loan be declined, it is refunded to you less any appraisal cost. Should your loan be approved and you elect not to close, the application deposit is non-refundable. To help expedite this process, the following is a check-list of documentation that we will need to insure a fast approval process:

1. A complete updated mortgage application (click here to start)
2. Copies of your last two pay stubs
3. Copies of your two most recent bank and/or investment account statement(s) (all pages, front & back)
4. Copies of your most recent retirement account statement(s) (all pages, front & back)
5. Copies of your most recent mortgage statement from your current lender if you receive one.
6. Your signed application disclosures returned (provided after formal application is made)
7. Copy of your current homeowners insurance policy or your agent’s name and phone number

When rates are dropping, the faster we can get your paperwork the quicker we can get your closing completed.

What if I lock and interest rates go lower than what I locked at?
An interest rate lock is just that, a lock. By locking in, you are guaranteed the rate you lock in at, whether or not market rates go up or down, you get what you locked in at. This is one more reason why I suggest our no closing cost mortgage. You can lock in and close with no closing cost. Should the market continue to move in your favor, you would close on your mortgage application and then would have the ability to refinance a second time at no closing cost. Keep in mind, when you lock we do collect an application deposit. Should you not close your transaction at the terms you have locked into, you could forfeit your application deposit. In cases of extreme market movements (rates moving by more than .375%) the bank may allow you to renegotiate your lock terms at it’s discretion.

Do you offer a no closing or reduced closing cost option?
Mortgage rates and closing cost go hand in hand. You can opt for a higher interest rate to offset part or all of your closing cost. Depending on how long you plan on owning the home or keeping the mortgage, a higher rate with lower closing cost may make more sense. We will help you review your options to make sure you have the option that is best for you.

As a reminder, an application deposit is collected on all applications whether or not you choose a no or reduced closing cost option. That deposit is refunded to you at the time of closing (see above for additional details).

Will paying closing cost get me a better rate?
Yes, paying closing cost will get you a better rate. However, it may not make sense to pay $1500 to $2500 in closing cost if the difference in rate is small. This is because it may take you longer to make back your cost. In addition, if rates were to drop further, you could be out the investment of closing cost. Our recommendation in today’s market is to look at both options and make sure you pick the option that is best for you. We will help you do the math to make sure you understand both options and have selected what is the best deal for you.

Rate’s are going lower, should I wait?
While it is your option to wait, you need to be aware of the risk in waiting. Here are some thoughts about waiting for rates to go even lower:

1. Mortgage money comes from Wall Street and the bond market in particular. The dynamics of how mortgages are priced are extremely complex. While we may think rates will continue to drop, the truth is any number of events can cause rates to change. Keep in mind we live in a global economy and now more than ever we are seeing foreign markets impact what is happening in the US markets. In addition, investments in US housing loans have been hurt by the recent housing crisis. While you can wait for rates to drop lower, remember, you are playing with fire and can get burnt.

2. Mortgage guidelines are changing. Your ability to refinance can be impacted by the change in mortgage guidelines.

3. Property values can impact your ability to refinance. If you purchased a home and had 15 to 20% down and were able to avoid PMI, you need to be concerned about whether or not your property has decreased in value. A decrease in value can lead to PMI where you may not have had it previously.If you financed 95 to 100% of what the house was worth when you purchased it, you may be unable to refinance all together if your property value has decreased. Depending on the options you are eligible for, the value of your home can have a big impact.

What are mortgage rates?
I am often asked why we don’t post rates on the internet like other lenders do. The truth is each rate quote is custom. So why do other lenders post rates and we don’t if each rate is custom? In my opinion, it is misleading to almost every client. Some clients may qualify for rates better than on the website because of their loan characteristics and others for rates worse. So what factors go into determining your rate? Here is just an abbreviated list:

Credit Score
Equity – Down Payment
Property Type
Loan Type
Loan Term
Number of Units
Debt Ratios
Closing Cost
Escrow Accounts
Second Mortgages
Mortgage Insurance

I have to be honest, that is a very short list of the many factors that can have an impact on your mortgage rate. It is important to remember that each characteristic can and will have an impact on your cost of mortgage money. In order to accurately price your mortgage, it is important that we have a complete mortgage application so that we can give you detailed accurate figures. Lenders who quote a rate sight unseen don’t know your credit score, equity position, debt ratios or any other pertinent factors. Quoting rates like that is like a doctor who gives a diagnosis to you even though they have never met you and don’t know what your symptoms are.

How do I get started?
The fastest way to start is by submitting an updated mortgage application.   As soon as we receive your application, we will confirm it and contact you to quickly review the details and your options.

We will also need your supporting documentation (see above). Please forward that information as soon as possible to us. This will help to insure a quick closing and the best rates possible for you.

How long does it take?
Please be patient.  When interest rates are low the volume of calls and inquiries is substantial.  It takes time to respond accurately to each client.  Being prepared will help to expedite your process.

The mortgage process is largely dependent on you and your level of cooperation.  If you are prepared and have all of the requested documents and have completed your application we are able to move quickly.  In most cases your loan can be completed in less than 3o days if it is not complex and does not require any interaction with a second mortgage or home equity loan holder.

If you have a home equity loan or second mortgage, your loan process can take substantially longer as in most cases the second lien holder will have to either be paid off as part of the mortgage process or they will have to agree to go back into a second position to the new loan.  This process can easily add 30 to 60 days to the mortgage process.

Being prepared and cooperative will certainly help to expedite the mortgage process.

Can I refinance if I no longer have 20% equity?
Yes.  In some cases you can even refinance with no equity.  Clients who are eligible for the Home Affordable Refinance Program have expanded options available to them.  To be eligible, your current loan would have had to have been closed no later than May 2009 (not all loans closed in May are eligible).

If your current loan closed after May 2009 and you had 20% or greater equity, you can still refinance even if you don’t have 20% equity.  However, in order to do so you would be required to either take a higher interest rate or deal with PMI (private mortgage insurance).  In some cases the math may make sense to do so.

Can I refinance if I owe more than my home is worth?
Only clients who are eligible for the Home Affordable Refinance Program are eligible to refinance if they owe more than what their home is worth.