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:
|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?