Should I Refinance?

I locked the rate on my condo’s existing mortgage in late May, once the contract was finalized. I now have over 25% in equity and have paid down almost $22,000 of the mortgage loan balance, so I’ve been curiously looking around at other mortgage rates that are out there. With how aggressively I’m paying down my mortgage, it would need to be a significant enough rate decrease to cover the fees (or a no cost refinance with a rate that is even 0.125% lower than my current rate). It’s been quite amusing researching this because the loan officers have been quite confused that I haven’t even owned the place for 6 months and I’ve already paid down that much of the balance.

I’ve found a few options that make sense:

Option Lender Rate Costs Estimated Savings Notes
A PenFed 2.75% none $1,000 needs 70% LTV on condos
B Lender #2 2.375% ~< $2,000 $2,200
C Lender #2 2.75% $400 ~> $1,500
D Lender #3 2.25% ~> $3,000 ~> $1,500
E Lender #3 2.5% no cost ~> $3,000

I’ve searched quite a few lenders and haven’t been able to find anyone else offering a 5/1 ARM at under 3% on a condo (or if they were, their fees made even less sense than these three). With a condo, rates are automatically higher than the general posted ones, even with my now having over 25% in equity.

With Lender #2, I would prefer Option C since it has a lower upfront cost for not that much difference in interest savings ($700).

With Lender #3, I would prefer Option E since it is the both the lower upfront cost and saves me $1,500 more over the course of the loan.

Would it make more sense to wait and try for the PenFed option since it would have no closing costs whatsoever? Nope, because I can get a no-cost refinance with Lender #3 for the same upfront price (nothing), a rate a quarter of a percent percentage point lower, and do it now instead of in 5 months. In that time, rates have gone down even more and it could make sense to refinance again, not just to 2.75%.

I was significantly leaning towards refinancing into a new 5/1 ARM at 2.75% with paying $400 upfront, until I found Lender #3, which makes it a complete no brainer. I should really keep a list of all the lenders I’ve looked at in this research for “next time” because I had looked at Lender #3 during the purchase lender selection process and almost forgot about it!

If I was to start the refinance process now, it would close after my November pre-payments and December 1st regular payment have gone through, with no payment due January 1st and the first new loan payment due February 1st. I would keep pre-payments in a savings account until I figured out how to pre-pay the new loan and then apply a big lump.

The risk with Lender #3 is that I pay for the appraisal up front and then they credit me back the fee if the loan goes through. If the appraisal comes back too low for me to have 75% LTV, then I would either be out the appraisal fee or I need to pay down the loan balance. Since I’m not that much over 75% LTV (yet!), the appraisal can’t come in that much lower (about $10k) than where my purchase appraisal came in.

It looks like there are slightly better loan options available (and more of them!) now that I am under 75% LTV, whereas I bought at 80% LTV. I think that that is mostly why it makes sense for me to refinance at this time. I’m going to take a few days to think about this and contact the loan officer I want to work with again early next week if I decide to go through with this.

Readers, what would you do? Would you refinance?

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21 thoughts on “Should I Refinance?

  1. Yes. I’d only look at no cost refi options and keep doing every 6-9 months or so. It’s no cost to you. Plus, you need to look at preserving optionality. You may be aggressive today, but may not be in a couple of years. Your “savings” is based on your current payment schedule, so if you slow that down any, you should “save” more. I’d pull the trigger on your best “no cost” option.

    • Yup, I just wanted to do the math with my current payment schedule to make sure I would save money even paying it down aggressively.

      Plus, refinancing into a lower rate extends the low rate period through the end of 2017 instead of just mid-2017. Agreed about “saving” even more if I stop paying down so aggressively and then the required monthly payment is lower too.

      It seems crazy to refinance already when I’ve only lived here for about 4 months!

  2. If it saves you money, definitely refinance. We moved 3 months ago and I’ve already talked to our mortgage guy about this. He has me on a ‘watch’ list and will call if rates drop enough.
    The only bad thing is that you have to go through the whole documentation and appraisal process again!

    • I’m slightly worried that the appraisal won’t come in high enough since there’s only about $10k in room before I would have to bring money to closing since the no-cost rate requires 75% LTV. The documentation process isn’t really that bad when I just have W-2 income and it’s only me! I’m definitely leaning towards refinancing to the no-cost 2.5% option I found :)

      • I know appraisals are such a huge issue right now, especially for condos. Sometimes I find it amazing that between all the documentation and appraisals that anyone can get a mortgage these days.

  3. Wow, we’ve only been getting quotes for 4K closing costs, so it hasn’t been worth it in most scenarios. We did two no-cost refinances in the past, but we’re still at 4.75% (down from 6.5%). Do you have any recommended lenders?

    • We just got 4% no cost but it was on an origination rather than refi. Refi would have been slightly higher. Costs vary from state to state but I would think you could get lower than 4.75% right now.

      • Yes, we can get lower, but so far the closing costs haven’t been worth it from the big banks we’ve talked to. With current rates, the max we could save would be around 8 or 9K, and that’s not including the risk of us moving before we pay the mortgage off (or us paying even faster if DH started bringing in new money), so 4K in closing costs hasn’t been low enough to get us to move.

        • Have you called and asked them what the no-cost rate is? Most places don’t seem to post it, but if the posted rate is lower than 4.25%, you might be able to get a no-cost refinance for under 4.5%.

        • No, we hadn’t done that. We talked to our regular lender who we’d done no-cost refinances from before, but they’ve stopped doing their regular no-cost refinance. But we’ll check with those others. Plus I know places are receptive to dropping fees if another lender has lower fees.

        • It seems like if you go through a mortgage lender/broker, they can sometimes find lower rates and closing costs, even though the loan often gets sold to the big banks anyway. That seems a bit perplexing to me because then where are they making their money?

    • I emailed you some info about the lenders I got these quotes from. Lender #3 in my description could offer me a 15 year fixed on a single family home at 3.125% with $2,744 in fees, so it can’t be more than 3.5% with no fees.

  4. Definitely the no cost option! I’ve already done it twice on my condo now. I’m at 7/1 3.125% right now, I saw that penfed rate but I’m not sure I want to switch to a 5/1 just yet. What other companies have you seen sub 3% no cost options with for a condo?

    • Sorry Joe – your comment got caught in my spam filter :/
      The terms of the 5/1 ARM with Lender #3 are a bit different than my current one. I think it’s worth the risk though and I’ve decided to move forward with the refinance. If the appraisal comes in too low, I’ll bring some money from my savings to cover the difference in closing (to a certain point) since my real goal is to pay down the mortgage ASAP and then pay back the savings with the subsequent paychecks.

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