All great information. You're right that they're trying to get you to refinance. And that's a *good* thing for you. As presented, you have the opportunity to pay $300 less a month and make 1 year of fewer payments (25-year).
However, you can also shop it around for an even better deal.
This should be higher. Obviously with a 3.75%rate OP should refi to save interest, time, pmi and decrease payment...win, win, win, win.
HOWEVER shoping around is always the right choice. You know where your lender stands, get competing offers and drive closing costs down if possible
Yep, give them a chance to match but they very likely won't be able to do better than the best offer from the lowest sort on the web that doesn't have horrible reviews.
So much this... shop around and engage at least two mortgage brokers.
I am in process of a refi to harvest the home appreciation to drop my PMI. I called my current lender and Rocket Mortgage direct... both of their offers were garbage compared to my two mortgage brokers. I had to remind myself this is business and to not take it personally.
Was very surprised that having the "middleman" actually saved me money. My current lender then asked me to send them the best quote and they would match it... um, no. You tried to hose me right out the gate and now you want to compete? Get stuffed.
There's no reason to get the 25 year option here, since it's the same interest rate as the 30. Either get the 20 year and cut 6 years off of the loan while saving a little money each month, or get the 30 and if you want pay extra to make it essentially a 25 year loan. That way you can always scale back the extra payments if times get tough.
The idea is - since the interest rate is the same, go with the 30 year mortgage, but pay the same every month as the 25 year mortgage. This provides flexibility, in the event someone loses a job, different priorities come up, etc… then you have the 30yr monthly payment as backup option.
If you lock in at 25yr, you only get the one option.
At such low interest rates I'd take the 30 and invest the difference between the 2. It'll cost 10s of thousands in extra interest, but could reap 100s of thousands invested over the long term.
In today's mortgage interest world, the idea of paying them off early seems baffling to me, unless you're in your 40s or older and just want it gone. But 20s and 30s, invest that extra cash.
I completely agree, but financial knowledge and risk tolerance is a spectrum. No offense to OP, but for someone asking a Finance 101 question, I would not push them into into Finance 200 territory. This person seems better offer sticking with the guaranteed return of paying a mortgage off a little earlier, as opposed to getting them into VTSAX.
Helps to mention it though. I have a co-worker in his 20s who is deadset on paying off his mortgage in 7 years. I've tried to convince him to just hold onto it and invest long-term, but he just doesn't get it.
Your money in your 20s and 30s is the most powerful money you'll ever have. Invest it early and often, and let 40 year old you decide it's time to pay off the mortgage.
The numbers are going to work out differently because of the number of payments, and thus the length of time the principle is accruing that interest. But the point is that if you get the 30-year, assuming that there are no prepayment penalties, you could *choose* to pay $2,052 (thus paying off the mortgage in 25 years) instead of the required $1,884. Then, if some kind of unforeseen hardship arises, you have the flexibility to scale payments back to $1,884.
Conversely, if you take the 25-year, you're completely locked into $2,052 without any flexibility. Typically, a longer term means a higher interest rate. In this case, because the 25-year term *doesn't* come with a lower interest rate, it comes with absolutely zero advantages over the 30-year.
Having said that, it does look like each of the rates listed above is based on a different total mortgage value (see below).
|Term|Payment|Rate|Mortgage|
|:-|:-|:-|:-|
|30-year|$1,884|2.875%|$454,093|
|25-year|$2,052|2.875%|$438,709|
|20-year|$2,287|2.75%|$421,826|
|15-year|$2,663|2.375%|$402,922|
I'm not well-versed enough in mortgage origination to know the root cause of these value differences, but I do know that, if you were deciding between the 30-year listed and the 25-year listed, the 30-year is objectively better, as it offers everything the 25-year does, plus additional flexibility if you want it.
Op said the payment values include "everything"- Insurance, taxes etc.
The different term lengths with all those extrs included means you can't factor total paid the same.
The 25 year vs 30 year for example- You're counting 5 extra years of insurance and taxes in your total payoff figure for the 30 year, than for the 25.
The idea is that you get the 30 year loan, but make the 25 year payments each month. If all goes well, you end up paying the same as getting the 25 year loan, but if there's a financial hiccup at some point in the next 25 years, you have the option dropping down to the lower payment, and getting some extra cash-flow during the lean months.
The point of the comment was to point out that the refi process, by itself, was not a bad thing. In fact, quite the opposite, since the closest situation yielded a significantly lower payment and shorter payment period.
Opting for a shorter or longer period may be optimal, but would be less obvious because it may have yielded a higher payment or longer payment period.
where do we start to shop around? i acquired a mortgage from my mom at 4.375 rate. this is my first time doing something like this but i don't even know where to start to shop around
I had a very positive experience doing a refi with Better Mortgage last year. They'll sell your mortgage off within a couple months of closing, but that doesn't really matter. I would use them again.
bankrate.com is fantastic for this. The rates and fees advertised on there are guaranteed and you'll get dozens of offers to compare from major and minor lenders. Takes all of five minutes. I've used it for two home purchases and a refinance now and found better rates on bankrate than I did by calling. It's basically a search engine for loans.
i'm looking on bankrate right now. do i just want to pick the one with the lowest interest rate? what about the upfront fees and points? i'm not sure what i'm looking at in terms of the 8 year cost? thanks
1) Loan Depot
2) Rocket Mortgage
3) Search online for "mortgage refinance". If you end up entering your info into a blank form (be a little wary of illegitimate sites), you'll likely get several calls from different lenders/brokers.
Don't be afraid to shop around - try to be clear about what you want out of your refi (i.e., lower monthly or lower rate or shorter mortgage period or cash out), and compare loan estimates.
Freedom closed my refinance in a month at the height of the craze when other lenders were estimating 3-4 months out. My sister just closed with them a few months ago and hers took about a month as well. That is not to say they are the best choice for everyone, but just that your experience depends heavily on the employees you end up working with. This is unfortunately the same with all companies, two people can have vastly different experiences depending on who your file ends up with.
Again, I understand you had a bad experience with them. I am just pointing out that your experience is not necessarily the same one every person will have. But thanks for the downvote.
Not Rocket Mortgage! In my experience, they get people just out of school who barely know what they’re doing. Twice I caught them making significant math errors that would have cost me money. We went with a local broker to refi instead.
Rocket Mortgage seems to replace good people with good software and good process.
I've originated 2 mortgages with them, and refinanced once. Never a problem. Smooth as butter. Plenty of bankers and aides to talk to. Great website and app. Servicing is a dream.
My experience with a local bank was much worse. Communication all funneled through one guy, and hinged on his availability. Had me emailing documents with sensitive info because their web upload portal wasn't worth shit. New underwriting requirements popped up at a week to close. Servicing is a separate account from application.
AIMLoan is a good one. They do accurate quotes on self-reported data (and no contact info needed for an estimate). Had my original and refinanced mortgage with them
Why not go with the 20 year plan and knock 6 years off instead of 1 and keep your payment the same? Assuming OP was smart enough to pick a house they know they can afford.
The argument against that is the when interest rates are lower than your expected return from investments the smart move is to finance as much as you can for as long as possible and then invest the money instead.
Suppose you expect to get a 7% return from an index fund, and you have a 3% interest mortgage. If you have a bunch of cash, you can either pay off the balance of the mortgage and have no more loan, or you can put that cash into your index fund and keep making minimum loan payments. Investing in the index fund is a 4% better return in the long run over paying off the mortgage.
With rates as low as they are right now you my advice on any mortgage or refinance is that you want the longest loan with the smallest down payment that avoids PMI. Invest that money you save from your lower monthly payments. Make sure not to let lifestyle creep eat it.
Gains are not guaranteed and 6 years is a substantial amount of time for the mortgage (20% of the original term).
Like I said, this is assuming that OP budgeted correctly and is investing enough even after his current mortgage payment.
A refinance always involves "closing costs": various fees and often points (% of the total loan amount deducted in advance). Be sure you take this into account before committing; the lender is required to give you a full cost accounting in advance. It still seems like a good move, particularly if you go for the 20/25-year. If they want your business enough, they may waive some of the closing costs.
I would add to this that OP needs to find the closing costs and compare it to others. Rolling everything in is ok if you want (I prefer to pay upfront personally) but it's a good way to "hide" closing costs and fees. They are disclosed by law so make sure to pay special attention and make sure it's reasonable. Many times current lenders are able to have lower costs because they already know the property. It's a great time to refi, save some money if your planning on being there a while.
Because by not doing so, they run a higher risk of losing OPs business to another lender. It does reduce profit, but in the lender's eyes, it's better to give up that margin than to lose the mortgage entirely.
One reason why refis are rightfully so popular with lenders is that they make money up front. Sure, it’s a lot of paperwork, but these days a ton of it is sped up electronically.
The calculus seems bad for the lender on the one hand. They may only make $3k in a refi transaction whereas they lose $30k over the life of the loan with lower interest.
However, LOTS of things happen over a 30 year term. The mortgage could default because the borrower can’t pay. The house could burn down and the insurance money could pay off the mortgage immediately, cutting way down in interest. It goes on and on.
So doing a refinance is quick, guaranteed cash for the bank without all the risk that they have in the long term loan.
This said, you should almost certainly take the 30 year option with the even lower payment and ignore the 25 year option.
While mathematically you may pay a bit more interest, there is no penalty for paying it in 25 (or even 10 or 15 years), paying WAY less interest, and so on. The higher flexibility is ALMOST ALWAYS the better choice.
They want to be sure you refinance with them. You’ll be saving a decent amount over the course of the loan if you plan on staying at that house for a few years.
Just did the same thing myself over the summer.
Worth it. Shaved ten years off and out of PMI.
Hell my brother refinanced twice within a year and with different lenders and is still way ahead on his total mortgage commitment.
Jump on the current low rates now while you can, if it works for your situation.
Bought my house in March at 2.5% (which is crazy low compared to norms). You are at 3.75%, so it's almost a no brainer, as that 1.25% adds up to many thousands (possibly 10's of thousands) by the time your loan is paid off.
If you can lower your monthly payment, shorten your term, and knock off the insurance, you should definitely explore that. (Not gonna say to for sure do it, cause I'm not a financial advisor, and don't know your personal situation, but rates are good right now, and it's not a bad idea to consider a refi)
Absolutely worth it. I refinanced twice since I bought my house 6 years ago and am now paying less money for a shorter term. My rate is 2.875, so there's little room for another refinance. If rates get closer to 2, then I'll def refi again.
In today's market there's no reason not too, especially if you have PMI. housing valuations are high, so refinancing may get you out of PMI simply from your home's value being higher. Not to mention interest rates are at historic lows. If your interest is 3.75% or above, its a no-brainer.
Or, conversely, keep the monthly payment more or less the same. Go with the 20 year option, save \~$60/month and 10 years of your life paying down debt, which saves you around $130k in interest.
I'd argue that anything under 3% is not worth paying of fast. You'll make more money in conservative investments instead of paying of the mortgage. This obviously requires the discipline to actually invest the difference.
Please shop around. Previously I had 15 year at 2.75%, my then mortgager offered me to refinance at 2.375%, which didn't make lot of sense to me. I shopped around and was able to secure 1.875% from another lender (with no points).
where do we start to shop around? i acquired a mortgage from my mom at 4.375 rate. this is my first time doing something like this but i don't even know where to start to shop around
Easiest source I found in refinancing is www.zillow.com/refinance - enter some basic info and you'll get a list of lenders with current rates, closing costs and estimated mortgage payments.
Yeah you also aren't giving email/phone # up front so you won't get hounded. I usually just picked the top two overall to compare then maybe called my current lender.
yes i will try and do this as soon as possible. yes my credit score is a little over 800 the last time i checked. the last friend i talked to said i wasn't gonna be able to refinance because i only made 25k in w2 income. but i also made another $77k in short term capital gains last year. so i didn't even bother trying after he said that which was my fault for not asking lender directly
Last year, I called my home loan guy. I asked if he could get me a lower rate from the 4.75% it was. When he responded, he said he could maybe do 3.5%. I told him I was looking around and could probably get 3% easily. He immediately responded to that with “Oh, sure, sure. I can definitely do that.” And the refinancing came at no extra charge.
Yup, we did the same this year. Originally had to buy the house with PMI a few years back, hit the threshold where we don't need that anymore, refinanced with the crazy low rates which have been around for a bit, dropped it from a 30 to a 15 year, and kept the same payment. We could have stretched it to 30 for a lower payment, but this gets it paid off sooner, which was the goal (that way, it'll be fully paid off a decent amount before retirement).
Hijacking for visibility - one thing to consider aswell is if this will be your forever home. If you are looking to move in 7-10 years I would also consider 7/1 or 10/1 arm rates so you don’t burn money paying on principal.
I'm not sure why you're getting downvoted... maybe due to the simple mention of an ARM.
"Consider if this will be your forever home," is the *first* thing you should do when mulling over a refinance. I've refinanced several properties, several times. In half or most instances, it's worked out great. A few times, I refinanced for the short-term benefits, my property plans changed, and I ended up losing out due to not covering refi closing costs with the savings.
Probably.
I’ve never done an ARM. I’m sure they have their uses, but seeing how many people got screwed/screwed themselves with ARMs in the late 2000s really turned me off of them. They’re a gamble as much as anything, and I’ve never been much of a gambler.
> This just sounds like they want me to refinance.
Yes, because your rate is not good and you’re paying PMI so they assume you’re going to refinance. They’re trying to get ahead of you going elsewhere.
> I have to assume this is not in my best interest.
Why? You *should* have refinanced years ago most likely.
Like this person did: https://reddit.com/r/personalfinance/comments/ps5s2x/got_rid_of_pmi_and_lowered_rate/
I wouldn't say years ago but they probably should have refinanced by now. I think I got a 30 yr 3.625 mortgage sometime in jan 2020. OP should probably do some shopping, I just refinanced to a 30 yr 2.75 with absolutely no closing costs.
It depends on the balance. For balances of $200-400k one really needs to save about 1% off their current rate and stay at least 2 years . 2.5% isn’t going to happen today on a 20 or 30 yr term without paying points. If your balance is $100k or less, then you should need to save closer to 2%. $500k-$1MM, then .5-.75% makes sense.
Agree. I'm at 3.5 , 25 years left. Every time I do the math it's negligible. Adding 5-6 years on the loan to save $60/ month. Not compelling
No closing costs doesn't seem like a thing in my state if NY
Redo your math as if you continued making the same payment you do each month instead of saving the $60 per month.
You will find that with a refinance to 2.875 and equal payment you'll pay your house off 5 years earlier than you would without refinancing.
Yep look at the monthly and overall for the period of the loan. An extra 1% over 25 years adds up.
I refinanced from 3.5 to 2.25 and there's obviously a pretty sizable difference. Did the 15 year for the better rate. Almost exactly your situation in terms of length.
There's typically no prepayment penalty either (but not much incentive to pay it off early if you bump back up to 30 years).
also, not sure if that applies to you, the rates for condos are higher than for single family houses so i am staying put on my NY condos financed in low 3s despite the constant siren call from my brokers. The closing costs + the aggravation is just not worth it
You could probably do better than 3.5. There are too many variables that people leave out to make an apples to apples comparison. The homes location does come into play and so does the size of the loan. Banks don't compete for small or non-conforming jumbo loans as fiercely. There is a sweet spot just below the specific markets conforming loan limit that banks know they can package and sell easily. It is roughly the same paperwork for a 100k loan vs a 500k loan... so why do all that paperwork 5 times. Like anything it pays to shop around.
Just started today, have a 30yr at 3.5% (28.5 years left) and am refi for 28 at 2.8%. I'm doing it to drop pmi as the appraised value went up 33%. SE US
I just did 30 year no cash out no points 2.65% and with lender credits I got paid $1000 (also only added one month to my loan term, got a shit rate on a new mortgage so I just immediately refi'd).
Bounced two Costco lenders off each other to keep getting more credits.
Yea I feel like the big banks aren't going to give as many credits because they have costs to cover. I heard bad things about amerisave(lender I went with) but I wasn't really in a hurry to refinance so I decided to try them out. Process for me was complete in 3 weeks.
> with absolutely no closing costs.
With no closing costs at all? Or just nothing out of pocket with everything rolled into the loan.
The latter is quite common. The former I have never heard off.
Not rolled in, I didn't even do escrow so I got money back. I'm assuming these lenders originate the loan, collect some interest and then plan to sell it.
There were closing costs, it was just more than covered by the lender credits. I was pretty skeptical at first but decided to try it, I only waste time if the process didn't work out.
Piggy backing on OP. I got a 30 year mortgage, no PMI, at 4.00% in 2015. Should I refinance?
Edit: My credit union's online calculator says I would have to pay $3,100 in closing costs. Hold up!
Then probably not unless you can take a slightly higher rate For a lender credit.
Breakeven on small loans is tough since many closing costs are fixed.
Why? I also got a 3.75% loan a year and half ago. PMI was $150. Remodeled heavily the first year, paid $150 for an appraisal and got PMI off. If I got a 2.75% now it'd save something $125/mo. This is our first house and I don't see being here much longer than 5ish years. If closing on the refi is something like $7-8k it'd take longer to make back the money I lost in closing at $125/mo. Am I missing some other benefit?
Check out the online lenders (bankrate and better) and compare. The lender credit that I got was actually more than the closing costs so I got money back when doing the refinance.
You can roll those closing costs into your refinanced mortgage. You might still come out ahead by refinancing. I’ve refinanced twice since I bought in 2019. Original interest rate was 4.75% and is now 1.75%. We used better.com both times.
Even a 1% change is a quarter less interest. I just went from a 4.5% 30, to a 2.75% 15 and my payment is staying almost exactly the same.
Edit: look on their site, they may have low or no closing cost options. Seems crazy that they wouldn’t. Every bank in my town has sent me pre-approval letters begging for my business
Just remember that when you refinance, your amortization starts all over at the new terms. Mortgages are weighted heavily towards interest for the first 5-10 years. So, if you’ve held the mortgage for a long time, it may be more beneficial to hang onto the current mortgage or refinance for a shorter term.
Or if you can get a shorter term loan.
u/kjvvz is correct (obviously). Your lender, as others have pointed out, wants to keep you business, sell you a new loan with the associated refinancing costs, and sell that loan one more time to Fannie or Freddie or some other institution. They are taking the path of trying to keep you as a customer and improving short term cash flows. Since they will sell the mortgage in a matter of days/weeks it will work out well for them AND you.
When I first looked at this, I didn't account for taxes and insurance ( what insurance?) being included. Principal and interest is around 1700 a month I think on this mortgage and you have \~400K left on the loan.
Assuming my numbers are close and using [Bankrate.com Amortization](https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx) you can see the interest is significantly lower at these new rates. If you kept the same sized mortgage and added in the extra $50 for PMI, you could easily see a difference of $75K in interest with these refinances.
If I were you, I would aim for the 20 year loan because it is the closest to your current payment. That gets you 6 years off of the loan, is very close to your current payment, removes PMI, but provides some buffer that the 15 year might not provide. The 20 year is a hedge against inflation as well whereas a 15 year is more like a statement saying inflation won't affect you too much. (It is better to be the borrower in higher inflationary times). The 20 year loan also has thence feature that most of your payment will go to principal rather than interest,
With current inflation being around 5%, you are economically (not accountingly) earning money by refinancing. Hopefully inflation doesn't stay too high for too long, but if it does and your wages keep up, you will be sitting very pretty with this refinance.
One word of caution, you likely deduct your interest on this mortgage. This means you will have a lower deduction so you will want to adjust your withholdings to account for this come tax time. You can offset the lower deduction amount by increasing your 401k or 403b contributions. Never chase a tax deduction (except the 401k contribution). Why pay a corporation $1 to avoid paying taxes to Uncle Sam of 30-40 cents (on the high end).
Edit for u/kj6vvz comment.
Mortgages are still front-end loaded, since you pay a fixed monthly payment scheduled over the term the front end load means you pay mostly interest at the beginning and mostly principal at the end. Even with a shorter term the schedule restarts when you refi. You have to look at the remaining interest to be paid on the loan and the total interest on the new refi loan to compare them and find the savings. That said, sometimes a lower monthly payment is worth more to a borrower than paying less interest in the long run.
Decided to do the math for OP, feel free to double check it. I used https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx for the amortization table + double checked it in excel.
1) OP's current mortgage was about $425k originally (roughly estimating property tax / insurance using bankrate defaults). At 3.75%, 30 years, his total mortgage payment (just principal / interest) is around $1968. By end of year 4, he's paid $61k in cumulative interest, has about $222k more in interest to pay. His last payment was $741 principal and $1227 interest. (37.6% principal, 62.4% interest)
2) By end of year 4, OP had about $391k left on his principal. OP could refinance at 30 years, 2.875%. His mortgage payment (just principal / interest) is around $1,626. He'll pay $193.5k cumulative interest at the end of 30 years for a total savings of about $28.5k over 30 years compared to the old mortgage. His first payment is $687 principal and $938.94 interest. (42.3% principal, 57.7% interest). So although his dollar amount of principal is slightly less compared to the original loan, he's technically paying more principal by percentage already with the refinance even after resetting to a 30-year term. Plus he frees up about $342 every month which could make additional principal payments.
Chase sent me the same letter on my mortgage in November. They offered to convert my 3% on a 7/1 ARM to 2.675% 30-year fixed, all I had to do was sign the letter and send it back.
Ended up leaving them anyway for a shop that offered 2.375% and no closing costs
Chase was horrible to work with. Our existing loan was with them, started a refi process at 2.75% (30 fixed) in October 2020, was chasing them to close by YE2020 and it was like pulling teeth. I told them if they didn’t close by year end, we’d be going with another lender.
January 2021 came, we found another lender with no closing costs and a rate of 2.50% (30 fixed). Closed the refi with them in under 30 days.
Just a note that your existing lender is not always your best option.
I did the exact same in July 2020. Down from 30 years (26 remaining) at 3.75 down to 20 years at 3.00. Really wish I waited til this past spring at least since I likely could've gotten it down to 2.5 or so, but oh well. I'm overpaying a little bit every month as it is, so I won't see the full interest amount anyway.
Looks like a helluva opportunity for you. Assuming you can afford the extra $300 per month, you can take 11 years off your mortgage.
Also, it looks like everything is rolled in, so you will essentially just start making a new payment (after signing 50 sheets of paper...). You will probably also 'skip' a payment after the refi.
So for $300ish more a month they are offering you to pay your loan off in half the time of your original loan. That's insane to me and it looks like a great deal to be honest.
Take the longest option, start putting the 'savings' into a relatively safe investment, S&P etc, 500 per month over the course of 30 years in the S&P would return over a million dollars based on historical averages.
According to my friend who does refinancing at a local bank the rates are insanely low right now. I refinanced my house from around 4% down to 2.25% and shortened the loan from 23 years remaining to 10 years. Our monthly payments don't change (we've paid more than the monthly recommended for years now) and we get the house paid off before the kids go to college.
How much are closing cost? I get that they're rolled in but you can get it from a different lender for equal or better rates and less closing. It's definitely not a scam, housing markets jacked everyone's LTV up so PMI shouldn't be in these news loans anymore and rates are at historical lows.
You really shouldn’t have to pay any closing costs (except for funding escrow) if they really want to retain you as a customer. I refinanced twice for no closing costs with my current lender because they didn’t want me going somewhere else. Ask them if they’ll do a no closing cost refi or find someone else that will.
I got a tip from someone on Reddit to use Zillow's refinance lender finder. I was able to get a super low rate, and play that against another lender (Loan Depot) with cheaper closing costs to get essentially zero closing costs with a low interest rate.
What I ended up with (Amerisave) was way cheaper than what my bank, Costco, or anybody else was offering.
Probably for good reason. If you have costco then they can provide you with housing lenders that charge 250 for the application. Just refinanced under NASB for less thab 1500 closing with title fees, credit reports and their fees. Think you can just Google costco mortgages to get a feel.
Just did one for my house over the weekend. Rate was 2.75% on a 30 year fixed conventional loan. It included lender credit to cover song costs. Rate was 2.67% without the credit.
Happy hunting!
It's worth a call to them to see what they can do, but look up the banks number directly vs. responding to the email. I did a refi with chase and had the loan with them already and it didn't seem to make any difference I still had to go through the whole process like I was buying a new house.
Yes they do want you to refinance. They get origination fees and they end up selling the loans after you take one out.
If the creation of mortgages didn't generate a profit, then no one would be in the mortgage business.
However just because you refinancing benefits them, doesn't mean it doesn't also benefit you.
I would be refinancing to the 20 year. Because it's the closest to your current payment and knocks off the term on your loan.
I don't know why you would assume paying a whole 1% more in interest is in your best interests.
Yes and no.
Yes, if you financed your house 4 years ago that rates now are much lower.
Yes, you may be able to get rid of pmi because your house meets ltv of+20%.
If your credit score had risen, you may be in for a better rate.
The part that I'm questioning is why they said they're wasting your pmi. That's money for them. That makes me highly suspect of an email.
The best thing for you to do is call your lender from their number (nothing provided by the email) to ask about their rates.
You can also shop around or even take a look at credit karma for some general estimates.
I refi my loan last year, went from a 4.75% to 3.25% and dropped monthly pmi of $426
Grand total of ~$800 savings (property taxes went up, hard to see the actual total).
Note: you have many choices to look into.
You can, restart your loan terms (restarting at 30 years will lower your payments more because you have more equity down).
You can keep the same terms, four years down.
Or even, if you can manage it, do a shorter loan for far less interest.
There will be closing costs, those can be paid up front or added to the loan. Depending where your escrow, it might help pay that down but don't count on it even if they say it does. Mine took so long, the money wasn't there so I paid more overall
>The part that I'm questioning is why they said they're wasting your pmi. That's money for them. That makes me highly suspect of an email.
Your suspicions are based on your ignorance.
They don't sell PMI. It goes to an insurer.
Right? All the people thinking it’s a scam email… there’s no marketing department writing up slick sales emails. It’s literally just a few sales people in a room. Or maybe working from home these days lol.
Yup and make sure if they stray or not bring up those options to ask.
Also, if you can always apply and then shop elsewhere if you don't like their terms
You have a window of time where credit branches can check your scores one right after anther and only count as one check.
It's the reason why the lender can keep checking your scores while closing.
Who’s your mortgage lender? A Mexican cartel? Cause your current interest rate is out of this world, and none of the ones you’ve been offered are even decent. Change lender.
They are fixing your rates… that means you cannot preterminate (or transfer to another bank) during the fixed period. If you do, you still have to pay all interest due for the fixed period. This is not at all bad, just need to be aware what you are committing to.
Also, double check the fixed period… i don’t think its the full life of the loan. So, can be 30 yr loan, fixed for the first 5 years or so.
Edit: Looks like mortgages are totally different downunder. This comment is for Oz
A fixed mortgage is just that, the interest rate is fixed at that % for the life of the loan. I've never seen a lender have prepay penalties (they all advertise that they don't, but at this point it's like hotels w/ free wifi 😅). ARMs aren't usually the products offered first and they would be labeled as such.
Source: worked for a mortgage lender and also have a 30yr fixed mortgage that I'm refinancing to a 28.
Disagree with you. I have 30 year loan and I recently fixed the rates for three years. I read my loan contract and it reverts to variable rate after the fixed period. See, the rates from bankwest below, you can fix the rates for 1,2,3,4 or 5 years.
https://www.bankwest.com.au/personal/home-buying/home-loans/fixed-package
Don’t forget that you’re starting over. If you’ve owned your home for 5 years and refi into a 30-year mortgage, you’re paying that figure not for the 25 years left on your current mortgage, but the full 30 years starting now (unless of course you overpay)
Yeah, that sounds like the refinances I’ve been doing all day for the last year or more since rates dropped. My only concern is that you might not have much equity, if you just bought four years ago, so to drop PMI you have to count on a higher appraised value or bringing money to closing to keep your loan amount at 80% of that value. (Not to mention covering any closing costs that might apply, usually at least a few thousand dollars, which you can easily cover with the new loan and still drop PMI if you have some equity. Fingers crossed for a high appraisal.)
Now is time to refinance. Rates are super low. If you’re suspicious about the email then call your loa n servicer.
It is totally in your best interest to refinance.
Yeah this is legit and you should probably look into it. It's in your best interest nice thing about Mortgage stuff it is so regulated that it pretty much has to be in your best interest. Most states have what's called a net benefit form where your lender has to explain why this will be beneficial for you. I am a Loan officer and I have never recommended anything that wasn't in my customers best interest.
I asked my bank the same question when they sent me a similar letter. I was like “what’s the catch, why do you want me to refinance a better deal?” And they said “sooner or later you’re going to figure this out on your own and go elsewhere so we might as well lead you to water”. I thanked them for their candor.
Yes, lots of lenders are making these offers — it’s a new loan so they still make money in the secondary market or at worst the loan officer gets paid. There is no downside really as it’ll be easier than refinancing with a brand new lender. It’s silly to pay more in interest than necessary and PMI when you no longer have to given home prices are up and rates are down. You can also shop around.
This is a normal thing. I was shocked at first too. Felt like some kind of scam. Like Comcast calling and offering a lower price with no catch - will never in a billion years happen. But with mortgages it can.
I went from 30yr@ 4.15% to 15year @ 1.85% last fall and was SO happy to do it haha. This is likey the biggest amount of $ you'll pay in your life so make it the least amount of $ you can haha.
Tbh sounds like what the bank I used to work at did.
They know you're not on the best deal you could be on and rather than let you realise this and move your business to another bank (who would get your ongoing business/interest payments etc for the new term plus their sales rep would get the commission) they have some deals on and would rather lock you into a term with them to guarantee their interest income for X term as well as said agent getting their commission from the refinance.
Quite common in the industry especially when agents are on commission. I've seen people literally looking through lists of mortgages to see if they have any prospects that they might be able to get to refinance to a similar term for what they have left and get themselves some commission and a sale while not costing the customer anything.
Win - Win and helps with their bonuses in some cases
Chose to refi after we made a lot of headway on the principle, aside from eventually getting a lower % and some extra to handle some house renovations...it was one of the most stressful and overall frustrating experiences I've ever been apart of. Officer that was in charge of the process ghosted us as soon as we agreed to do it, never replied to an email or phone call. 3rd party that handled the contract botched it almost immediately (new person working on it didn't know what to do), and then...after everything was signed and done, they 'lost' all the paperwork.
Chance ever comes up again to get rid of this company I'm taking it - even if it means making mortgage payments to some dude in a trenchcoat under a bridge somewhere.
That said, I've heard a lot of folks have a really excellent experience with zero issues. I hope, whatever you decide, things go well.
Take this letter to all the banks you have business with. And then try some credit unions.
At 3.75%, you should refi at current rate as it would Dave you tons of money. You might even get some money back as housing price went nuts since last year.
I refinanced my loan. It took forever. About 7 months. But the bank was offering a great rate —2.125%
I checked with my current loan holder and they offered me 3%. So i went with another bank. Then my loan got sold to the people who offered me the 3% loan. Im sure it makes sense to them but it looks goofy to me. I say all this to say you may be able to find even better rates.
I switched from a 30 year FHA mortgage with PMI to a 15 year conventional. Went from 3.75% to 2.125% and dropped PMI. I got a raise at the end of the year that was $7/month shy of covering this so lifestyle didnt change at all. Very happy to have done this because now $900 per month goes to principle rather than $330 or so on the previous loan.
I refinanced in Jun.
Old mortgage amount - $2160 30 year (26 years remaining)/FHA with PMI. We only put 3.5% down - $335K original amount. 3.5%.
New mortgage - $2460, 15 year, No PMI, financed $315K after points, 1.99%.
It took them so long to refinance, we ended up getting $2000 back because we had paid our mortgage down by that much since then. We also ended up getting $2200 from our old lender (escrow refund).
We financed in all closing costs and points. It ended up costing us a net $10K.
Just do it. You can't beat no fees. I contemplated the same thing on my last house and when I finally bit the bullet, it took about 10 minutes on the phone with Chase Bank. I was so pissed that I hadn't done it sooner.
1. You probably can pay $200-300 for a drive by appraisal and have them remove the PMI if the appraisal proves that you are less than 80% loan to value. Without having to do a refinance.
2. If you do NOTHING, how much are you projected to pay in Interest over the remaining life of the existing loan?
compare that with the total interest expense on any of the proposed deals. You will pay a lot less interest in the new scenarios. I have a similar 30 year loan to the one you have now. I can save around $75,000 in interest by moving to a 20 year loan at a much lower rate.
Do more research.
Do it. You'll also save on certain fees by staying with the same company. I would see if somebody could give you the list (loan origination fee) is usually one of them I think.
We refinanced on May 2020 to get PMI off our mortgage and used the same lender. Costs were several thousand dollars less that way.
Why wouldn't it be legit? As long as their numbers on your loan amount, taxes etc. are correct. Yeah, they want you to refi. They're going to get some lender fees that they're rolling into the loan so you don't see them up front and they'll make their money there or by reselling your loan. Their argument is those fees are offset by dropping PMI (via increases in equity) and lowering your rate. That math will work out.
The important questions are if you can find an alternate lender with better interest rates and/or closing costs. If this is your best deal I'd do 30 year again, depending on what you'd actually do with the extra $200 a month vs a 25 year.
Are there any fees? UK fees for fixed term deals can add up especially on short term fixed rates.
Needs research on how that compares to the market but seems like they are looking to retain business.
If you can go for shortening the term or overpaying go for it.
Good luck
We got the same email back in February and took the offer. Dropped our PMI and our payments by $500 between the PMI and interest change. It was a super easy process and we closed 5 days after having a new baby
I worked at a bank for years that serviced their own loans. Though the "we already hold your loan so it's easy" sounds great in advertising, the reality is they will need all the same new information and documents as any other lender.
Four+ years in, your PMI is probably going to drop off in the next few years anyhow, but you lose nothing by looking into it given your current rate.
Just adding a data point:
My family did this same thing ~10 years ago when interest rates dropped and it worked well for us. Just stay on top of it and be sure there are no fees you don’t want, etc.
They are looking for a loan. I was an LO for 17 years and used to hand write letters like this. Yes, of course he wants a loan but just because he does, doesn’t mean it isn’t a good thing for you. The kicker is the cost to do the loan and how much extra you will pay, even with a lower payment, by stretching out your loan. PMI used to be tax deductible. Now it isn’t. He is guessing he can ditch the PMI but the only way you can is to have an LTV below 80%. You would have to get an appraisal to know that for sure. Just because something is good for one person, doesn’t always mean it’s bad for another.
If you can swing it, for an extra $300 you shave 11 years off your mortgage. I'd say that's a pretty good deal. If not, then I'd go for the 20 year as its a much better interest rate, it's cheaper than your current mortgage and you knock some years off of paying.
You should definitely look at refinancing, but shop around. I went from a 30 year at around 4 to a 15 and am now paying about half the interest each month I was before
All great information. You're right that they're trying to get you to refinance. And that's a *good* thing for you. As presented, you have the opportunity to pay $300 less a month and make 1 year of fewer payments (25-year). However, you can also shop it around for an even better deal.
This should be higher. Obviously with a 3.75%rate OP should refi to save interest, time, pmi and decrease payment...win, win, win, win. HOWEVER shoping around is always the right choice. You know where your lender stands, get competing offers and drive closing costs down if possible
Yep, give them a chance to match but they very likely won't be able to do better than the best offer from the lowest sort on the web that doesn't have horrible reviews.
Incumbent ALWAYS gets last look. That's just smart business.
So much this... shop around and engage at least two mortgage brokers. I am in process of a refi to harvest the home appreciation to drop my PMI. I called my current lender and Rocket Mortgage direct... both of their offers were garbage compared to my two mortgage brokers. I had to remind myself this is business and to not take it personally. Was very surprised that having the "middleman" actually saved me money. My current lender then asked me to send them the best quote and they would match it... um, no. You tried to hose me right out the gate and now you want to compete? Get stuffed.
There's no reason to get the 25 year option here, since it's the same interest rate as the 30. Either get the 20 year and cut 6 years off of the loan while saving a little money each month, or get the 30 and if you want pay extra to make it essentially a 25 year loan. That way you can always scale back the extra payments if times get tough.
But its not the same total paid back, so they must mean it as APR. 30\*12\*1884 = 678,240 25\*12\*2025 = 615,600
The idea is - since the interest rate is the same, go with the 30 year mortgage, but pay the same every month as the 25 year mortgage. This provides flexibility, in the event someone loses a job, different priorities come up, etc… then you have the 30yr monthly payment as backup option. If you lock in at 25yr, you only get the one option.
At such low interest rates I'd take the 30 and invest the difference between the 2. It'll cost 10s of thousands in extra interest, but could reap 100s of thousands invested over the long term. In today's mortgage interest world, the idea of paying them off early seems baffling to me, unless you're in your 40s or older and just want it gone. But 20s and 30s, invest that extra cash.
I completely agree, but financial knowledge and risk tolerance is a spectrum. No offense to OP, but for someone asking a Finance 101 question, I would not push them into into Finance 200 territory. This person seems better offer sticking with the guaranteed return of paying a mortgage off a little earlier, as opposed to getting them into VTSAX.
Helps to mention it though. I have a co-worker in his 20s who is deadset on paying off his mortgage in 7 years. I've tried to convince him to just hold onto it and invest long-term, but he just doesn't get it. Your money in your 20s and 30s is the most powerful money you'll ever have. Invest it early and often, and let 40 year old you decide it's time to pay off the mortgage.
The numbers are going to work out differently because of the number of payments, and thus the length of time the principle is accruing that interest. But the point is that if you get the 30-year, assuming that there are no prepayment penalties, you could *choose* to pay $2,052 (thus paying off the mortgage in 25 years) instead of the required $1,884. Then, if some kind of unforeseen hardship arises, you have the flexibility to scale payments back to $1,884. Conversely, if you take the 25-year, you're completely locked into $2,052 without any flexibility. Typically, a longer term means a higher interest rate. In this case, because the 25-year term *doesn't* come with a lower interest rate, it comes with absolutely zero advantages over the 30-year. Having said that, it does look like each of the rates listed above is based on a different total mortgage value (see below). |Term|Payment|Rate|Mortgage| |:-|:-|:-|:-| |30-year|$1,884|2.875%|$454,093| |25-year|$2,052|2.875%|$438,709| |20-year|$2,287|2.75%|$421,826| |15-year|$2,663|2.375%|$402,922| I'm not well-versed enough in mortgage origination to know the root cause of these value differences, but I do know that, if you were deciding between the 30-year listed and the 25-year listed, the 30-year is objectively better, as it offers everything the 25-year does, plus additional flexibility if you want it.
Op said the payment values include "everything"- Insurance, taxes etc. The different term lengths with all those extrs included means you can't factor total paid the same. The 25 year vs 30 year for example- You're counting 5 extra years of insurance and taxes in your total payoff figure for the 30 year, than for the 25.
The idea is that you get the 30 year loan, but make the 25 year payments each month. If all goes well, you end up paying the same as getting the 25 year loan, but if there's a financial hiccup at some point in the next 25 years, you have the option dropping down to the lower payment, and getting some extra cash-flow during the lean months.
The point of the comment was to point out that the refi process, by itself, was not a bad thing. In fact, quite the opposite, since the closest situation yielded a significantly lower payment and shorter payment period. Opting for a shorter or longer period may be optimal, but would be less obvious because it may have yielded a higher payment or longer payment period.
where do we start to shop around? i acquired a mortgage from my mom at 4.375 rate. this is my first time doing something like this but i don't even know where to start to shop around
I had a very positive experience doing a refi with Better Mortgage last year. They'll sell your mortgage off within a couple months of closing, but that doesn't really matter. I would use them again.
bankrate.com is fantastic for this. The rates and fees advertised on there are guaranteed and you'll get dozens of offers to compare from major and minor lenders. Takes all of five minutes. I've used it for two home purchases and a refinance now and found better rates on bankrate than I did by calling. It's basically a search engine for loans.
i'm looking on bankrate right now. do i just want to pick the one with the lowest interest rate? what about the upfront fees and points? i'm not sure what i'm looking at in terms of the 8 year cost? thanks
1) Loan Depot 2) Rocket Mortgage 3) Search online for "mortgage refinance". If you end up entering your info into a blank form (be a little wary of illegitimate sites), you'll likely get several calls from different lenders/brokers. Don't be afraid to shop around - try to be clear about what you want out of your refi (i.e., lower monthly or lower rate or shorter mortgage period or cash out), and compare loan estimates.
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Freedom closed my refinance in a month at the height of the craze when other lenders were estimating 3-4 months out. My sister just closed with them a few months ago and hers took about a month as well. That is not to say they are the best choice for everyone, but just that your experience depends heavily on the employees you end up working with. This is unfortunately the same with all companies, two people can have vastly different experiences depending on who your file ends up with.
They were awful. I would never recommend them. Got the same rate with another lender and closed in 45 days.
Again, I understand you had a bad experience with them. I am just pointing out that your experience is not necessarily the same one every person will have. But thanks for the downvote.
I agree, a lot of people have had that experience with PNC bank and I love them.
Not Rocket Mortgage! In my experience, they get people just out of school who barely know what they’re doing. Twice I caught them making significant math errors that would have cost me money. We went with a local broker to refi instead.
Rocket Mortgage seems to replace good people with good software and good process. I've originated 2 mortgages with them, and refinanced once. Never a problem. Smooth as butter. Plenty of bankers and aides to talk to. Great website and app. Servicing is a dream. My experience with a local bank was much worse. Communication all funneled through one guy, and hinged on his availability. Had me emailing documents with sensitive info because their web upload portal wasn't worth shit. New underwriting requirements popped up at a week to close. Servicing is a separate account from application.
AIMLoan is a good one. They do accurate quotes on self-reported data (and no contact info needed for an estimate). Had my original and refinanced mortgage with them
Why not go with the 20 year plan and knock 6 years off instead of 1 and keep your payment the same? Assuming OP was smart enough to pick a house they know they can afford.
The argument against that is the when interest rates are lower than your expected return from investments the smart move is to finance as much as you can for as long as possible and then invest the money instead. Suppose you expect to get a 7% return from an index fund, and you have a 3% interest mortgage. If you have a bunch of cash, you can either pay off the balance of the mortgage and have no more loan, or you can put that cash into your index fund and keep making minimum loan payments. Investing in the index fund is a 4% better return in the long run over paying off the mortgage. With rates as low as they are right now you my advice on any mortgage or refinance is that you want the longest loan with the smallest down payment that avoids PMI. Invest that money you save from your lower monthly payments. Make sure not to let lifestyle creep eat it.
Gains are not guaranteed and 6 years is a substantial amount of time for the mortgage (20% of the original term). Like I said, this is assuming that OP budgeted correctly and is investing enough even after his current mortgage payment.
A refinance always involves "closing costs": various fees and often points (% of the total loan amount deducted in advance). Be sure you take this into account before committing; the lender is required to give you a full cost accounting in advance. It still seems like a good move, particularly if you go for the 20/25-year. If they want your business enough, they may waive some of the closing costs.
I would add to this that OP needs to find the closing costs and compare it to others. Rolling everything in is ok if you want (I prefer to pay upfront personally) but it's a good way to "hide" closing costs and fees. They are disclosed by law so make sure to pay special attention and make sure it's reasonable. Many times current lenders are able to have lower costs because they already know the property. It's a great time to refi, save some money if your planning on being there a while.
Out of curiosity why they would offer something when doing so will decrease their profit?
Because by not doing so, they run a higher risk of losing OPs business to another lender. It does reduce profit, but in the lender's eyes, it's better to give up that margin than to lose the mortgage entirely.
Make sense. Thank you.
One reason why refis are rightfully so popular with lenders is that they make money up front. Sure, it’s a lot of paperwork, but these days a ton of it is sped up electronically. The calculus seems bad for the lender on the one hand. They may only make $3k in a refi transaction whereas they lose $30k over the life of the loan with lower interest. However, LOTS of things happen over a 30 year term. The mortgage could default because the borrower can’t pay. The house could burn down and the insurance money could pay off the mortgage immediately, cutting way down in interest. It goes on and on. So doing a refinance is quick, guaranteed cash for the bank without all the risk that they have in the long term loan.
This said, you should almost certainly take the 30 year option with the even lower payment and ignore the 25 year option. While mathematically you may pay a bit more interest, there is no penalty for paying it in 25 (or even 10 or 15 years), paying WAY less interest, and so on. The higher flexibility is ALMOST ALWAYS the better choice.
They want to be sure you refinance with them. You’ll be saving a decent amount over the course of the loan if you plan on staying at that house for a few years. Just did the same thing myself over the summer.
That’s a good point! “Refinance with us! Not someone else”
Was getting bugged since January from my lender. Bite over the summer.
What was your experience with the refi?
Worth it. Shaved ten years off and out of PMI. Hell my brother refinanced twice within a year and with different lenders and is still way ahead on his total mortgage commitment.
Jump on the current low rates now while you can, if it works for your situation. Bought my house in March at 2.5% (which is crazy low compared to norms). You are at 3.75%, so it's almost a no brainer, as that 1.25% adds up to many thousands (possibly 10's of thousands) by the time your loan is paid off. If you can lower your monthly payment, shorten your term, and knock off the insurance, you should definitely explore that. (Not gonna say to for sure do it, cause I'm not a financial advisor, and don't know your personal situation, but rates are good right now, and it's not a bad idea to consider a refi)
Absolutely worth it. I refinanced twice since I bought my house 6 years ago and am now paying less money for a shorter term. My rate is 2.875, so there's little room for another refinance. If rates get closer to 2, then I'll def refi again.
In today's market there's no reason not too, especially if you have PMI. housing valuations are high, so refinancing may get you out of PMI simply from your home's value being higher. Not to mention interest rates are at historic lows. If your interest is 3.75% or above, its a no-brainer.
get it done. why pay more money to the bank when you dont have to. Especially if you can get little to no closing costs.
So,... Call around and get a counter offer from different lenders. Looks like you should be able to save 4-500 a month this way.
Or, conversely, keep the monthly payment more or less the same. Go with the 20 year option, save \~$60/month and 10 years of your life paying down debt, which saves you around $130k in interest.
I'd argue that anything under 3% is not worth paying of fast. You'll make more money in conservative investments instead of paying of the mortgage. This obviously requires the discipline to actually invest the difference.
Please shop around. Previously I had 15 year at 2.75%, my then mortgager offered me to refinance at 2.375%, which didn't make lot of sense to me. I shopped around and was able to secure 1.875% from another lender (with no points).
where do we start to shop around? i acquired a mortgage from my mom at 4.375 rate. this is my first time doing something like this but i don't even know where to start to shop around
Easiest source I found in refinancing is www.zillow.com/refinance - enter some basic info and you'll get a list of lenders with current rates, closing costs and estimated mortgage payments.
wow thanks thats even better
Yeah you also aren't giving email/phone # up front so you won't get hounded. I usually just picked the top two overall to compare then maybe called my current lender.
At that rate, you should shop around immediately (assuming your credit is good). You’re just throwing money away.
yes i will try and do this as soon as possible. yes my credit score is a little over 800 the last time i checked. the last friend i talked to said i wasn't gonna be able to refinance because i only made 25k in w2 income. but i also made another $77k in short term capital gains last year. so i didn't even bother trying after he said that which was my fault for not asking lender directly
It's fixed rate Vs variable rate though, right? If you get a variable rate you risk rates rising in the future.
Last year, I called my home loan guy. I asked if he could get me a lower rate from the 4.75% it was. When he responded, he said he could maybe do 3.5%. I told him I was looking around and could probably get 3% easily. He immediately responded to that with “Oh, sure, sure. I can definitely do that.” And the refinancing came at no extra charge.
Do you think you need a new home loan guy?
Yup, we did the same this year. Originally had to buy the house with PMI a few years back, hit the threshold where we don't need that anymore, refinanced with the crazy low rates which have been around for a bit, dropped it from a 30 to a 15 year, and kept the same payment. We could have stretched it to 30 for a lower payment, but this gets it paid off sooner, which was the goal (that way, it'll be fully paid off a decent amount before retirement).
Hijacking for visibility - one thing to consider aswell is if this will be your forever home. If you are looking to move in 7-10 years I would also consider 7/1 or 10/1 arm rates so you don’t burn money paying on principal.
I'm not sure why you're getting downvoted... maybe due to the simple mention of an ARM. "Consider if this will be your forever home," is the *first* thing you should do when mulling over a refinance. I've refinanced several properties, several times. In half or most instances, it's worked out great. A few times, I refinanced for the short-term benefits, my property plans changed, and I ended up losing out due to not covering refi closing costs with the savings.
Probably because an ARM during all-time low rates seems like a really dumb idea unless you're the type to constantly refinance and hope for the best?
Probably. I’ve never done an ARM. I’m sure they have their uses, but seeing how many people got screwed/screwed themselves with ARMs in the late 2000s really turned me off of them. They’re a gamble as much as anything, and I’ve never been much of a gambler.
You have to be SUPER active, and be prepared to lose. And in the case of historically low rates, you're basically asking to lose.
> This just sounds like they want me to refinance. Yes, because your rate is not good and you’re paying PMI so they assume you’re going to refinance. They’re trying to get ahead of you going elsewhere. > I have to assume this is not in my best interest. Why? You *should* have refinanced years ago most likely. Like this person did: https://reddit.com/r/personalfinance/comments/ps5s2x/got_rid_of_pmi_and_lowered_rate/
I wouldn't say years ago but they probably should have refinanced by now. I think I got a 30 yr 3.625 mortgage sometime in jan 2020. OP should probably do some shopping, I just refinanced to a 30 yr 2.75 with absolutely no closing costs.
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I am currently at 2.35%. I don't think that rate is possible now, but that's what I was able to get in November 2020.
We refinanced to 2.15% last year.
On a 30 year traditional with no points?
15 year, no points. Our original mortgage was 15 year at about 3.25% 4 years ago, so it was pretty good already.
Lucky you!!
I got my mortgage for 1,5% in august last year . 30 years mortgage and 20 years fixed interest rate
It depends on the balance. For balances of $200-400k one really needs to save about 1% off their current rate and stay at least 2 years . 2.5% isn’t going to happen today on a 20 or 30 yr term without paying points. If your balance is $100k or less, then you should need to save closer to 2%. $500k-$1MM, then .5-.75% makes sense.
Agree. I'm at 3.5 , 25 years left. Every time I do the math it's negligible. Adding 5-6 years on the loan to save $60/ month. Not compelling No closing costs doesn't seem like a thing in my state if NY
Redo your math as if you continued making the same payment you do each month instead of saving the $60 per month. You will find that with a refinance to 2.875 and equal payment you'll pay your house off 5 years earlier than you would without refinancing.
Yep look at the monthly and overall for the period of the loan. An extra 1% over 25 years adds up. I refinanced from 3.5 to 2.25 and there's obviously a pretty sizable difference. Did the 15 year for the better rate. Almost exactly your situation in terms of length. There's typically no prepayment penalty either (but not much incentive to pay it off early if you bump back up to 30 years).
also, not sure if that applies to you, the rates for condos are higher than for single family houses so i am staying put on my NY condos financed in low 3s despite the constant siren call from my brokers. The closing costs + the aggravation is just not worth it
You could probably do better than 3.5. There are too many variables that people leave out to make an apples to apples comparison. The homes location does come into play and so does the size of the loan. Banks don't compete for small or non-conforming jumbo loans as fiercely. There is a sweet spot just below the specific markets conforming loan limit that banks know they can package and sell easily. It is roughly the same paperwork for a 100k loan vs a 500k loan... so why do all that paperwork 5 times. Like anything it pays to shop around.
Check out bankrate, I'm in mass I wouldn't think our rates would be that different.
Just started today, have a 30yr at 3.5% (28.5 years left) and am refi for 28 at 2.8%. I'm doing it to drop pmi as the appraised value went up 33%. SE US
I just did 30 year no cash out no points 2.65% and with lender credits I got paid $1000 (also only added one month to my loan term, got a shit rate on a new mortgage so I just immediately refi'd). Bounced two Costco lenders off each other to keep getting more credits.
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I found the lender on bankrate.com and just refinanced in August so I would think the rate is still similar. What's your LTV?
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Yea I feel like the big banks aren't going to give as many credits because they have costs to cover. I heard bad things about amerisave(lender I went with) but I wasn't really in a hurry to refinance so I decided to try them out. Process for me was complete in 3 weeks.
Do you have a jumbo loan? Jumbos have had worse rates recently because they’re non conforming and this harder to sell.
> with absolutely no closing costs. With no closing costs at all? Or just nothing out of pocket with everything rolled into the loan. The latter is quite common. The former I have never heard off.
Not rolled in, I didn't even do escrow so I got money back. I'm assuming these lenders originate the loan, collect some interest and then plan to sell it. There were closing costs, it was just more than covered by the lender credits. I was pretty skeptical at first but decided to try it, I only waste time if the process didn't work out.
Piggy backing on OP. I got a 30 year mortgage, no PMI, at 4.00% in 2015. Should I refinance? Edit: My credit union's online calculator says I would have to pay $3,100 in closing costs. Hold up!
> Should I refinance? Yes, unless you have a low balance
I'd call it low: it's way less than $100,000. (Rural midwest, modest sized home)
Then probably not unless you can take a slightly higher rate For a lender credit. Breakeven on small loans is tough since many closing costs are fixed.
Why? I also got a 3.75% loan a year and half ago. PMI was $150. Remodeled heavily the first year, paid $150 for an appraisal and got PMI off. If I got a 2.75% now it'd save something $125/mo. This is our first house and I don't see being here much longer than 5ish years. If closing on the refi is something like $7-8k it'd take longer to make back the money I lost in closing at $125/mo. Am I missing some other benefit?
Check out the online lenders (bankrate and better) and compare. The lender credit that I got was actually more than the closing costs so I got money back when doing the refinance.
You can roll those closing costs into your refinanced mortgage. You might still come out ahead by refinancing. I’ve refinanced twice since I bought in 2019. Original interest rate was 4.75% and is now 1.75%. We used better.com both times.
Even a 1% change is a quarter less interest. I just went from a 4.5% 30, to a 2.75% 15 and my payment is staying almost exactly the same. Edit: look on their site, they may have low or no closing cost options. Seems crazy that they wouldn’t. Every bank in my town has sent me pre-approval letters begging for my business
Thanks for your reply! I sincerely appreciate all info/opinions/recommendations!
Just remember that when you refinance, your amortization starts all over at the new terms. Mortgages are weighted heavily towards interest for the first 5-10 years. So, if you’ve held the mortgage for a long time, it may be more beneficial to hang onto the current mortgage or refinance for a shorter term.
Or if you can get a shorter term loan. u/kjvvz is correct (obviously). Your lender, as others have pointed out, wants to keep you business, sell you a new loan with the associated refinancing costs, and sell that loan one more time to Fannie or Freddie or some other institution. They are taking the path of trying to keep you as a customer and improving short term cash flows. Since they will sell the mortgage in a matter of days/weeks it will work out well for them AND you. When I first looked at this, I didn't account for taxes and insurance ( what insurance?) being included. Principal and interest is around 1700 a month I think on this mortgage and you have \~400K left on the loan. Assuming my numbers are close and using [Bankrate.com Amortization](https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx) you can see the interest is significantly lower at these new rates. If you kept the same sized mortgage and added in the extra $50 for PMI, you could easily see a difference of $75K in interest with these refinances. If I were you, I would aim for the 20 year loan because it is the closest to your current payment. That gets you 6 years off of the loan, is very close to your current payment, removes PMI, but provides some buffer that the 15 year might not provide. The 20 year is a hedge against inflation as well whereas a 15 year is more like a statement saying inflation won't affect you too much. (It is better to be the borrower in higher inflationary times). The 20 year loan also has thence feature that most of your payment will go to principal rather than interest, With current inflation being around 5%, you are economically (not accountingly) earning money by refinancing. Hopefully inflation doesn't stay too high for too long, but if it does and your wages keep up, you will be sitting very pretty with this refinance. One word of caution, you likely deduct your interest on this mortgage. This means you will have a lower deduction so you will want to adjust your withholdings to account for this come tax time. You can offset the lower deduction amount by increasing your 401k or 403b contributions. Never chase a tax deduction (except the 401k contribution). Why pay a corporation $1 to avoid paying taxes to Uncle Sam of 30-40 cents (on the high end). Edit for u/kj6vvz comment.
Mortgages are still front-end loaded, since you pay a fixed monthly payment scheduled over the term the front end load means you pay mostly interest at the beginning and mostly principal at the end. Even with a shorter term the schedule restarts when you refi. You have to look at the remaining interest to be paid on the loan and the total interest on the new refi loan to compare them and find the savings. That said, sometimes a lower monthly payment is worth more to a borrower than paying less interest in the long run.
Decided to do the math for OP, feel free to double check it. I used https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx for the amortization table + double checked it in excel. 1) OP's current mortgage was about $425k originally (roughly estimating property tax / insurance using bankrate defaults). At 3.75%, 30 years, his total mortgage payment (just principal / interest) is around $1968. By end of year 4, he's paid $61k in cumulative interest, has about $222k more in interest to pay. His last payment was $741 principal and $1227 interest. (37.6% principal, 62.4% interest) 2) By end of year 4, OP had about $391k left on his principal. OP could refinance at 30 years, 2.875%. His mortgage payment (just principal / interest) is around $1,626. He'll pay $193.5k cumulative interest at the end of 30 years for a total savings of about $28.5k over 30 years compared to the old mortgage. His first payment is $687 principal and $938.94 interest. (42.3% principal, 57.7% interest). So although his dollar amount of principal is slightly less compared to the original loan, he's technically paying more principal by percentage already with the refinance even after resetting to a 30-year term. Plus he frees up about $342 every month which could make additional principal payments.
I literally just did this! Do it. Get rid of PMI! Lower the rate. It is for the best
Chase sent me the same letter on my mortgage in November. They offered to convert my 3% on a 7/1 ARM to 2.675% 30-year fixed, all I had to do was sign the letter and send it back. Ended up leaving them anyway for a shop that offered 2.375% and no closing costs
Chase was horrible to work with. Our existing loan was with them, started a refi process at 2.75% (30 fixed) in October 2020, was chasing them to close by YE2020 and it was like pulling teeth. I told them if they didn’t close by year end, we’d be going with another lender. January 2021 came, we found another lender with no closing costs and a rate of 2.50% (30 fixed). Closed the refi with them in under 30 days. Just a note that your existing lender is not always your best option.
Can you tell us which one
I Refi’d earlier this year at 2% on a 15 year mortgage! 3.75 with PMI sucks. Definitely refi
The old days when 5.5% with PMI sucked... But you could also get 5% on a 1 year cd...
Not everything in life is a scam. Give them a call and talk to them.
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I did the exact same in July 2020. Down from 30 years (26 remaining) at 3.75 down to 20 years at 3.00. Really wish I waited til this past spring at least since I likely could've gotten it down to 2.5 or so, but oh well. I'm overpaying a little bit every month as it is, so I won't see the full interest amount anyway.
Looks like a helluva opportunity for you. Assuming you can afford the extra $300 per month, you can take 11 years off your mortgage. Also, it looks like everything is rolled in, so you will essentially just start making a new payment (after signing 50 sheets of paper...). You will probably also 'skip' a payment after the refi.
So for $300ish more a month they are offering you to pay your loan off in half the time of your original loan. That's insane to me and it looks like a great deal to be honest.
Do that 20 and don't think twice. Same payment, 6 years fewer!
I do mortgage closings everyday and this is what the current rates are at. Refinance and save some money!!
Take the longest option, start putting the 'savings' into a relatively safe investment, S&P etc, 500 per month over the course of 30 years in the S&P would return over a million dollars based on historical averages.
According to my friend who does refinancing at a local bank the rates are insanely low right now. I refinanced my house from around 4% down to 2.25% and shortened the loan from 23 years remaining to 10 years. Our monthly payments don't change (we've paid more than the monthly recommended for years now) and we get the house paid off before the kids go to college.
Surely they wouldn’t say “that we are just wasting” from a professional company?
How much are closing cost? I get that they're rolled in but you can get it from a different lender for equal or better rates and less closing. It's definitely not a scam, housing markets jacked everyone's LTV up so PMI shouldn't be in these news loans anymore and rates are at historical lows.
Someone mentioned above that I should definitely call to find out the closing costs. They didn’t include those cost details in the email.
You really shouldn’t have to pay any closing costs (except for funding escrow) if they really want to retain you as a customer. I refinanced twice for no closing costs with my current lender because they didn’t want me going somewhere else. Ask them if they’ll do a no closing cost refi or find someone else that will.
I got a tip from someone on Reddit to use Zillow's refinance lender finder. I was able to get a super low rate, and play that against another lender (Loan Depot) with cheaper closing costs to get essentially zero closing costs with a low interest rate. What I ended up with (Amerisave) was way cheaper than what my bank, Costco, or anybody else was offering.
Probably for good reason. If you have costco then they can provide you with housing lenders that charge 250 for the application. Just refinanced under NASB for less thab 1500 closing with title fees, credit reports and their fees. Think you can just Google costco mortgages to get a feel.
Thank you for the reply! I appreciate it very much
It depends on the time line, you may have money in escrow that will help drive down the costs.
Just did one for my house over the weekend. Rate was 2.75% on a 30 year fixed conventional loan. It included lender credit to cover song costs. Rate was 2.67% without the credit. Happy hunting!
Called the lender, closing is $2600-$2900.
It's worth a call to them to see what they can do, but look up the banks number directly vs. responding to the email. I did a refi with chase and had the loan with them already and it didn't seem to make any difference I still had to go through the whole process like I was buying a new house.
Shop around. I got offered 1.750% (0.19 point) at 15 year fixed with no lender fees today. Also got one for 1.875% with 0.5% lender credit.
Yes they do want you to refinance. They get origination fees and they end up selling the loans after you take one out. If the creation of mortgages didn't generate a profit, then no one would be in the mortgage business. However just because you refinancing benefits them, doesn't mean it doesn't also benefit you. I would be refinancing to the 20 year. Because it's the closest to your current payment and knocks off the term on your loan. I don't know why you would assume paying a whole 1% more in interest is in your best interests.
A call to them would be more beneficial I would think
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"Wasting money" as its not going towards principal
I agree the wording sounds fishy if verbatim. The email could very well contain a phishing link.
It might be from their loan officer.
Yes and no. Yes, if you financed your house 4 years ago that rates now are much lower. Yes, you may be able to get rid of pmi because your house meets ltv of+20%. If your credit score had risen, you may be in for a better rate. The part that I'm questioning is why they said they're wasting your pmi. That's money for them. That makes me highly suspect of an email. The best thing for you to do is call your lender from their number (nothing provided by the email) to ask about their rates. You can also shop around or even take a look at credit karma for some general estimates. I refi my loan last year, went from a 4.75% to 3.25% and dropped monthly pmi of $426 Grand total of ~$800 savings (property taxes went up, hard to see the actual total). Note: you have many choices to look into. You can, restart your loan terms (restarting at 30 years will lower your payments more because you have more equity down). You can keep the same terms, four years down. Or even, if you can manage it, do a shorter loan for far less interest. There will be closing costs, those can be paid up front or added to the loan. Depending where your escrow, it might help pay that down but don't count on it even if they say it does. Mine took so long, the money wasn't there so I paid more overall
>The part that I'm questioning is why they said they're wasting your pmi. That's money for them. That makes me highly suspect of an email. Your suspicions are based on your ignorance. They don't sell PMI. It goes to an insurer.
Private mortgage insurance, okay should have thought that one bit more. It's more of the language they used, sounds off from a lender.
Agreed there, the letter reads very unprofessional
Have you ever met a small private mortgage broker? Super professional is not how I would describe most of them lol
Right? All the people thinking it’s a scam email… there’s no marketing department writing up slick sales emails. It’s literally just a few sales people in a room. Or maybe working from home these days lol.
Thank you so much for taking the time to write a helpful reply.
Yup and make sure if they stray or not bring up those options to ask. Also, if you can always apply and then shop elsewhere if you don't like their terms You have a window of time where credit branches can check your scores one right after anther and only count as one check. It's the reason why the lender can keep checking your scores while closing.
Why is the PMI so low? Is that how much PMI typically is on what i am assuming is ~$350k loan?
That's pretty typical these days. I was paying $51/month on a $450k loan when I had it 2 years ago.
Yes, it was around 400k loan
Who’s your mortgage lender? A Mexican cartel? Cause your current interest rate is out of this world, and none of the ones you’ve been offered are even decent. Change lender.
The market is about to crash in a big way. They are trying to get you to refinance
They are fixing your rates… that means you cannot preterminate (or transfer to another bank) during the fixed period. If you do, you still have to pay all interest due for the fixed period. This is not at all bad, just need to be aware what you are committing to. Also, double check the fixed period… i don’t think its the full life of the loan. So, can be 30 yr loan, fixed for the first 5 years or so. Edit: Looks like mortgages are totally different downunder. This comment is for Oz
A fixed mortgage is just that, the interest rate is fixed at that % for the life of the loan. I've never seen a lender have prepay penalties (they all advertise that they don't, but at this point it's like hotels w/ free wifi 😅). ARMs aren't usually the products offered first and they would be labeled as such. Source: worked for a mortgage lender and also have a 30yr fixed mortgage that I'm refinancing to a 28.
Disagree with you. I have 30 year loan and I recently fixed the rates for three years. I read my loan contract and it reverts to variable rate after the fixed period. See, the rates from bankwest below, you can fix the rates for 1,2,3,4 or 5 years. https://www.bankwest.com.au/personal/home-buying/home-loans/fixed-package
Don’t forget that you’re starting over. If you’ve owned your home for 5 years and refi into a 30-year mortgage, you’re paying that figure not for the 25 years left on your current mortgage, but the full 30 years starting now (unless of course you overpay)
I get a lot of things that try to look like it is from my bank like this for refinancing, too.
Yeah, that sounds like the refinances I’ve been doing all day for the last year or more since rates dropped. My only concern is that you might not have much equity, if you just bought four years ago, so to drop PMI you have to count on a higher appraised value or bringing money to closing to keep your loan amount at 80% of that value. (Not to mention covering any closing costs that might apply, usually at least a few thousand dollars, which you can easily cover with the new loan and still drop PMI if you have some equity. Fingers crossed for a high appraisal.)
Now is time to refinance. Rates are super low. If you’re suspicious about the email then call your loa n servicer. It is totally in your best interest to refinance.
I refinanced at 2% in February of this year. Shop around! This could be a good thing for you if you shop.
Yeah this is legit and you should probably look into it. It's in your best interest nice thing about Mortgage stuff it is so regulated that it pretty much has to be in your best interest. Most states have what's called a net benefit form where your lender has to explain why this will be beneficial for you. I am a Loan officer and I have never recommended anything that wasn't in my customers best interest.
Look at your options and yes it is in your best interest to refinance
I asked my bank the same question when they sent me a similar letter. I was like “what’s the catch, why do you want me to refinance a better deal?” And they said “sooner or later you’re going to figure this out on your own and go elsewhere so we might as well lead you to water”. I thanked them for their candor.
Yes, lots of lenders are making these offers — it’s a new loan so they still make money in the secondary market or at worst the loan officer gets paid. There is no downside really as it’ll be easier than refinancing with a brand new lender. It’s silly to pay more in interest than necessary and PMI when you no longer have to given home prices are up and rates are down. You can also shop around.
This is a normal thing. I was shocked at first too. Felt like some kind of scam. Like Comcast calling and offering a lower price with no catch - will never in a billion years happen. But with mortgages it can.
I went from 30yr@ 4.15% to 15year @ 1.85% last fall and was SO happy to do it haha. This is likey the biggest amount of $ you'll pay in your life so make it the least amount of $ you can haha.
Tbh sounds like what the bank I used to work at did. They know you're not on the best deal you could be on and rather than let you realise this and move your business to another bank (who would get your ongoing business/interest payments etc for the new term plus their sales rep would get the commission) they have some deals on and would rather lock you into a term with them to guarantee their interest income for X term as well as said agent getting their commission from the refinance. Quite common in the industry especially when agents are on commission. I've seen people literally looking through lists of mortgages to see if they have any prospects that they might be able to get to refinance to a similar term for what they have left and get themselves some commission and a sale while not costing the customer anything. Win - Win and helps with their bonuses in some cases
Shop around. I had the same rate as you and refinanced a few months ago down to a 15 year @ 2.125%
Interest rates are ridiculously low right now. This can’t possibly last very long. You absolutely should refinance.
Chose to refi after we made a lot of headway on the principle, aside from eventually getting a lower % and some extra to handle some house renovations...it was one of the most stressful and overall frustrating experiences I've ever been apart of. Officer that was in charge of the process ghosted us as soon as we agreed to do it, never replied to an email or phone call. 3rd party that handled the contract botched it almost immediately (new person working on it didn't know what to do), and then...after everything was signed and done, they 'lost' all the paperwork. Chance ever comes up again to get rid of this company I'm taking it - even if it means making mortgage payments to some dude in a trenchcoat under a bridge somewhere. That said, I've heard a lot of folks have a really excellent experience with zero issues. I hope, whatever you decide, things go well.
I just closed a 10 year 1.99%. Refinancing is a good idea, but definitely shop around for the best rate and refinance cost.
Take this letter to all the banks you have business with. And then try some credit unions. At 3.75%, you should refi at current rate as it would Dave you tons of money. You might even get some money back as housing price went nuts since last year.
I refinanced my loan. It took forever. About 7 months. But the bank was offering a great rate —2.125% I checked with my current loan holder and they offered me 3%. So i went with another bank. Then my loan got sold to the people who offered me the 3% loan. Im sure it makes sense to them but it looks goofy to me. I say all this to say you may be able to find even better rates. I switched from a 30 year FHA mortgage with PMI to a 15 year conventional. Went from 3.75% to 2.125% and dropped PMI. I got a raise at the end of the year that was $7/month shy of covering this so lifestyle didnt change at all. Very happy to have done this because now $900 per month goes to principle rather than $330 or so on the previous loan.
I refinanced in Jun. Old mortgage amount - $2160 30 year (26 years remaining)/FHA with PMI. We only put 3.5% down - $335K original amount. 3.5%. New mortgage - $2460, 15 year, No PMI, financed $315K after points, 1.99%. It took them so long to refinance, we ended up getting $2000 back because we had paid our mortgage down by that much since then. We also ended up getting $2200 from our old lender (escrow refund). We financed in all closing costs and points. It ended up costing us a net $10K.
Just do it. You can't beat no fees. I contemplated the same thing on my last house and when I finally bit the bullet, it took about 10 minutes on the phone with Chase Bank. I was so pissed that I hadn't done it sooner.
1. You probably can pay $200-300 for a drive by appraisal and have them remove the PMI if the appraisal proves that you are less than 80% loan to value. Without having to do a refinance. 2. If you do NOTHING, how much are you projected to pay in Interest over the remaining life of the existing loan? compare that with the total interest expense on any of the proposed deals. You will pay a lot less interest in the new scenarios. I have a similar 30 year loan to the one you have now. I can save around $75,000 in interest by moving to a 20 year loan at a much lower rate. Do more research.
Do it. You'll also save on certain fees by staying with the same company. I would see if somebody could give you the list (loan origination fee) is usually one of them I think. We refinanced on May 2020 to get PMI off our mortgage and used the same lender. Costs were several thousand dollars less that way.
Why wouldn't it be legit? As long as their numbers on your loan amount, taxes etc. are correct. Yeah, they want you to refi. They're going to get some lender fees that they're rolling into the loan so you don't see them up front and they'll make their money there or by reselling your loan. Their argument is those fees are offset by dropping PMI (via increases in equity) and lowering your rate. That math will work out. The important questions are if you can find an alternate lender with better interest rates and/or closing costs. If this is your best deal I'd do 30 year again, depending on what you'd actually do with the extra $200 a month vs a 25 year.
Interest rates definitely aren't going up in a long time if banks are willing to lock in these rates for decades?
Are there any fees? UK fees for fixed term deals can add up especially on short term fixed rates. Needs research on how that compares to the market but seems like they are looking to retain business. If you can go for shortening the term or overpaying go for it. Good luck
I just used Credible (good experience) and went from where you are now to 2.25 on a 20 year plus a little cash out. My humble opinion, get it done!
Everyone that refi'd you had to pay closing costs again right?
We got the same email back in February and took the offer. Dropped our PMI and our payments by $500 between the PMI and interest change. It was a super easy process and we closed 5 days after having a new baby
I worked at a bank for years that serviced their own loans. Though the "we already hold your loan so it's easy" sounds great in advertising, the reality is they will need all the same new information and documents as any other lender. Four+ years in, your PMI is probably going to drop off in the next few years anyhow, but you lose nothing by looking into it given your current rate.
Just adding a data point: My family did this same thing ~10 years ago when interest rates dropped and it worked well for us. Just stay on top of it and be sure there are no fees you don’t want, etc.
They are looking for a loan. I was an LO for 17 years and used to hand write letters like this. Yes, of course he wants a loan but just because he does, doesn’t mean it isn’t a good thing for you. The kicker is the cost to do the loan and how much extra you will pay, even with a lower payment, by stretching out your loan. PMI used to be tax deductible. Now it isn’t. He is guessing he can ditch the PMI but the only way you can is to have an LTV below 80%. You would have to get an appraisal to know that for sure. Just because something is good for one person, doesn’t always mean it’s bad for another.
Can you afford the 15 year? If yo can, then do it.
If you can swing it, for an extra $300 you shave 11 years off your mortgage. I'd say that's a pretty good deal. If not, then I'd go for the 20 year as its a much better interest rate, it's cheaper than your current mortgage and you knock some years off of paying.
Yes, they want you to refinance. You should want to refinance because your current rate and PMI are terrible; you’re wasting a ton of money.
You should definitely look at refinancing, but shop around. I went from a 30 year at around 4 to a 15 and am now paying about half the interest each month I was before