Refinancing: are they lying to me?

[Garga]

We currently have 23 more years left on our 30 year mortgage.

 

If we refinance with Bank of America for a 20 year loan, our payment will go up by $29 each month, but we'll save $24,000 over the course of the loan.

 

They require $400 up front to lock in the interest rate.

 

There will be $2500 in fees that are added to the loan, so we wouldn't pay them separately (they're wrapped into the monthly mortgage payment.)

 

Is it really that simple?

 

They say there is nothing else hidden. Are they telling the truth?

 

Has anyone refinanced before and had an unexpected fee or problem?

[NoPlaceLikeHome]

:bigear:

 

I have heard that one extra payment a year can knock almost a decade off your payments.

 

Clark Howard seems like a smart guy:)

http://clarkhoward.com/

[Desert Rat]

That sounds about right. We refinanced 8 years ago. We went from a 30 yr fixed at 7.5% to a 15 yr fixed at 4.7%. We were able to get rid of our PMI and our monthly payments stayed within $5 of what we were paying. It was a great idea!

Good luck!

[lisamarie]

I'm not sure what you're refinancing under, but we refied back in the summer under Obama's refi deal that I think may not be an option anymore, but if you were up to date on your mortgage, you could refi without having to go through the credit check again. It was really easy--paid $500 up front to lock in our rate, then paid around $2000 or more at closing that was rolled into our mortgage and we dropped our interest rate and our payments. We had 28 years left on our mortgage and went back to a 30 year loan, so our payments dropped by $160/mn. The only tricky part was trying to figure out how to fill out our taxes with 2 mortgage reports from the bank. I had to call my dad. :D

[cathmom]

I've read very bad things about B of A, some right here on this board!

[BeckyFL]

I just don't trust Bank of America - I think i've heard Clark Howard make comments as well. What about the mortgage co Dave Ramsey recommends?

[KidsHappen]

We refied last year and we ended up saving both $ per month and thousands in interest. It really was that simple.

[Carol in Cal.]

Also, is your current interest rate fixed, and will the new one be fixed?

 

If both are fixed rates, and they are the same, then couldn't you accomplish the same thing just by increasing your payments each month?

[Garga]

Also, is your current interest rate fixed, and will the new one be fixed?

 

If both are fixed rates, and they are the same, then couldn't you accomplish the same thing just by increasing your payments each month?

 

Current rate is fixed. New rate w/b fixed, but w/b lower.

 

If we just pay one more mortgage payment each year, it'd be equivalent to $72 extra a month, instead of the $29 extra a month.

 

And if we pay out one extra mortgage a year we save $17,000 vs the $24,000 we'd save w/ refinancing.

 

DH is leaning towards not doing it. He says that if we lock into even $29 more a month, and then taxes go up...it could all just keep going up little by little until we can't afford it. He is leaning towards saving up the $72 a month to make the extra mortgage, but if we have a problem and can't pay the extra, well that's ok. We won't HAVE to pay the extra.

 

So, long term gain: $24,000. Short term possible problem: struggling to make payments if taxes and everything else goes up or we lose some income.

 

I see what dh is saying, but it's just $29 bucks. It's tough for me to pass up on $24,000 for just the $29 bucks a month.

[Garga]

Since DH is getting hung up on this extra $29 a month, I think we'll call the loan guy and find out if there's a way to shift things around so our payments stay the same. Put a bit down? Something like that.

 

So far people have responded with vague worries about Bank of America, or have said that refinancing is fine without hidden surprises that pop up later down the road.

 

So, I'm ok with refinancing if dh can be satisfied that our monthly payment stays the same. I just hate giving up $24k over the next 20 years. That could help pay for a college education or something pretty big. Or be put into retirement savings. I hate just saying, "Nah, we'll pass on the $24k."

 

$29 extra a month is only $348 a year. I just earned $229 at the Tot Swap selling the kid's old toys.

[melissel]

That sounds right to me. And I'd definitely refinance under those conditions, $29 a month be d***ed. The BofA part is another issue entirely, but I really feel like every big bank has those problems--personally, I loathe Chase (who now holds our mortgage, lucky us), I've heard people refer to Citibank as Sh***yBank (and I've had nothing but great experiences with them), a Google search will pull up message boards about how horrible WaMu was, etc.

[Carol in Cal.]

I would scrutinize the good faith estimate or whatever they are calling it these days. I would make sure that there is no prepayment penalty, so you can keep paying faster than the loan requires if you are financially able to down the road. And then if that all looks good, I'd go for it. The payments are so close that the difference seems insignficant.

[Dana]

About 7 years ago we refinanced our house - went from 30 year mortgage at 7% to a 15 year mortgage at 5.185%. Monthly payment went up by about $50, but wow did we pay off principal quickly! That was definitely worth the refi.

 

We did have a couple of rougher years when taxes and insurance went up, so the escrow jumped. It was tight, so your husband's concerns are valid (depending on just how tight your situation is now).

 

We just closed today (assuming the paperwork glitch doesn't cause a problem with the mortgage company...) and refinanced again. Dropping almost a point and doing another 15 year loan. It does extend the loan and closing costs were a pain, so the numbers of what we're paying don't make the refinance make sense, but... we're pulling out cash and I'm getting a new car! :D I've never never owned a new car. I've never owned a car with under 70,000 miles, so this'll be really great!

 

This time the refinance doesn't make sense over the long run - basically we're loaning ourselves the money to buy a car. But it does drop our mortgage payment by over $100 and we'll have a mortgage when our son is in college (hoping that helps with financial aid, but we may be wrong there).

 

We went back and forth for months before deciding to refinance. Rates ARE rising now, so you'll probably want to decide relatively quickly. You may also want to check and see if a 15 year loan would be significantly lower interest than a 20 year loan. But you do probably want to be sure both you and your husband agree - it is a big decision. And be sure to only get a fixed rate and have no prepayment penalties. Good luck with it!

[fairfarmhand]

I'm 30 yrs old with only 9 yrs. left on our mortgage. So yeah, the re-fi worked great for us.

[Mommyof4ks]

When we refinanced our house it really was that easy, but we ended up dumping our first bank because they tried to hide a prepayment penalty in there. It knocked off 10 years on our mortgage with a very small payment increase.

[Night Elf]

When we refinanced our former home about 7 or 8 years ago, it was really easy. I don't recall our payments changing much.

 

Since finding Dave Ramsey, we've been paying an additional amount on our mortgage each month which will shorten our mortgage at least 10 years. We are 5 years into a 30-year loan so the more we shave off the end, the better off we'll be!

[AngieW in Texas]

We refinanced last summer. We had 25 years left on a 30-year note and cut it down to 15 years. Our payment went up by $150/month, but that's not a bad amount to cut 10 years off our loan term. All closing costs were rolled into the loan.

[Nestof3]

We had Bank of America for our refinance, and they were fine. We refinanced to a 10 year mortgage which we paid off in 6 years by paying extra. We refinanced b/c we got a better interest rate. My brother works for Bank of America.

 

You can go to www.bankrate.com and put it will calculate how much faster you would pay it off if you paid off extra without getting a better interest rate. It is amazing how much just a little bit more a month helps.

 

Now, credit cards companies are required to include info on the statement like: how long it would take paying the minimum and how long it would take paying more. It also includes how much you would end up paying. It is crazy how it adds up, and it's crazy in a good way how it adds up in a good way when you pay extra.

[Nestof3]

I'm going to email this to my brother and ask him.

[OrganicAnn]

Run two amortization schedules (easy to do with spreadsheet) 1) your current mortgage and 2) the refinanced mortgage. Then compare the total interest paid over the life of the loan. Consider the points as interest.

 

Also make sure you understand about all the costs/fees - appraisal, etc. Banks have tightened up their mortgage underwriting and may require more documentation thus more costs.

[catalinakel]

I would scrutinize the good faith estimate or whatever they are calling it these days. I would make sure that there is no prepayment penalty, so you can keep paying faster than the loan requires if you are financially able to down the road. And then if that all looks good, I'd go for it. The payments are so close that the difference seems insignficant.

 

And I would have a real estate attorney look over the paperwork...in this day and age you can't be too careful.

[Denisemomof4]

I haven't read any of the replies but I STRONGLY advise you to RUN AWAY from Bank of America. They are, by FAR, the worst business we have dealt with EVER. I can absolutely NEVER recommend them and we'd NEVER use them again for anything. EVER. How they are still in business and allowed to operate the way they do completely baffles me.

[Nestof3]

My brother said this:

 

They should ask the banker for indicative closing statement representing all of the fees. Could be these are the only fees (below) but there could be some additional nits, such as an application fee and/or flood zone check. Again, the banker should be able to provide a detail listing of the bank fees. There can be other items that are not bank fees per se but, rather, pass thru items such as fees (tax) charged by the county / city to record the mortgage, title search, and so forth. The banker should provide them with an approximation of any such pass thru items as well.

 

Finally, he said this:

Food for thought - I am not sure of the difference in the interest rates and other details, but they might be able to save the $24k simply by increasing the amount they pay each month now on the existing loan (and pay off the existing loan earlier than scheduled). Ergo no fees.

 

I'm going to add that a better way to go is to pay extra every month rather than pay one more mortgage payment at the end of the year.

 

It looks like you have already run amortization schedules for each scenario, so I'm not really understanding what's not to trust. Though APRs can look so similar in that one might be one percent more than the other, it ends up being a huge difference b/c of the way interest is calculated. You can always run it through www.bankrate.com as well.

Edited April 14, 2010 by nestof3

[Nestof3]

I haven't read any of the replies but I STRONGLY advise you to RUN AWAY from Bank of America. They are, by FAR, the worst business we have dealt with EVER. I can absolutely NEVER recommend them and we'd NEVER use them again for anything. EVER. How they are still in business and allowed to operate the way they do completely baffles me.

 

I'm curious -- are you speaking from a mortgage standpoint or a credit card standpoint?

[RegGuheert]

Current rate is fixed. New rate w/b fixed, but w/b lower.

 

If we just pay one more mortgage payment each year, it'd be equivalent to $72 extra a month, instead of the $29 extra a month.

 

And if we pay out one extra mortgage a year we save $17,000 vs the $24,000 we'd save w/ refinancing.

 

DH is leaning towards not doing it. He says that if we lock into even $29 more a month, and then taxes go up...it could all just keep going up little by little until we can't afford it. He is leaning towards saving up the $72 a month to make the extra mortgage, but if we have a problem and can't pay the extra, well that's ok. We won't HAVE to pay the extra.

 

So, long term gain: $24,000. Short term possible problem: struggling to make payments if taxes and everything else goes up or we lose some income.

 

I see what dh is saying, but it's just $29 bucks. It's tough for me to pass up on $24,000 for just the $29 bucks a month.

Although I don't know the difference in interest rates, I tend to agree with your DH. Here are some thoughts:

 

- As PP said, most of your savings are coming from the three years during which you will not be paying your mortgage, although some of it is due to the lower interest rates. In any case, the savings are not very big, IMO.

- Please note that initially your principal amount will be higher than before. As a result, there is a certain time period during which if you pay off your house, you will pay MORE than if you had kept your old mortgage. In other words, the savings you are calculating will only be realized if you take the fully 20 years to pay off the mortgage. If you move or otherwise pay off your mortgage in the next few years, you will certainly lose money on this deal.

- Refinancing a house is, IMO, a PITA.

- Refinancing a house includes some real risks. Every time we refinanced our house, there were MORE terms than had been included in the previous mortgage. At one point, we sent back one of our refinance mortgages under our 3-day right of rescission because we could not accept one of the terms in the document. (We always wondered WHO would do this. It turned out it was US! ;)) I have also heard many, many horror stories from friends who have shown up at closing only to be offered a higher interest rate than had been originally agreed upon. One case was a good friend who was a CPA. I couldn't believe he signed the papers! I would have gotten up and walked out.

 

In any case, good luck whichever way you go!

[mrs.m]

Since DH is getting hung up on this extra $29 a month, I think we'll call the loan guy and find out if there's a way to shift things around so our payments stay the same. Put a bit down? Something like that.

 

So far people have responded with vague worries about Bank of America, or have said that refinancing is fine without hidden surprises that pop up later down the road.

 

 

My full story about B of A for mortgage is too long to post here. It was a nightmare when our home sale fell through and we had to end the deal on the home we were buying. They were insistant that we could do two mortgages (um, no!!!, I say what I can afford!) at once and wouldn't shut down our contract until we had an attorney contact them. We hadn't even closed on the house! I needed a loan denial to get out of the new house contract but they kept saying we could do two house payments. I was in phone tree hell for days on end trying to shut things down because the local rep told me it would be illegal for her to deny the loan??? Which meant I had to go above her head through corporate. It was not fun!

 

We still use them for our banking purposes but I will never attempt a mortgage through them again.

 

I would shop around. There are other mortgage companies out there that aren't so difficult to work with!

[Krista in LA]

It sounds like it makes sense for you to do it, but I would be leary of Bank of America as I have heard way too many horror stories about them. Of course after our recent experience refinancing with Chase, I would not recommend them either. The lady with the title company that closed our refinance said that she recommends sticking with smaller, local banks as things seem to go much better with them. We will definitely remember that next time. We thought using the bank that our mortgage was with would make it easier but it didn't. It still took 4 months, yes, 4 months to close and we have excellent credit, no other debt, and a mortgage that is far less than what we actually could afford.

[JenC3]

I'd pay extra every month and try to knock off an additional payment once a year, because with the $29 extra a month plus fees over the next 3 yrs you are paying $109.55 more a month.

[MrsMe]

I've never heard of paying money to lock in an interest rate. Usually you just sign a paper. I don't know if it's from state to state. The refi fees seems low, which is good.

 

We refied. I found it better to take the 30 year and make extra payments. It comes out the same or better than a 15 year and if you run into problems, you have cushion.

[Crimson Wife]

One of our new neighbors tried to re-finance their house last fall but the appraisal came in WAY low. As in over $100k below what the virtually identical house we bought was appraised at by our lender. My DH has a MBA in finance and does financial analysis for a living. He crunched the numbers up the wazoo before we put in our bid. There was also another house for sale in the neighborhood that went into pending before our sale price became public information. That house ended up selling for even more than what we paid. So there's no way the lowball appraisal our neighbor got during the refi attempt was accurate.

[IsabelC]

The figures sound plausible to me. But don't trust a bank! Use a mortgage calculator to run the numbers, and get somebody you trust to check it out if numbers are not your strong point. Similarly, do not sign anything until you fully understand it. They should be happy for you to take the paperwork home to read again or consult a friend, relative or financial adviser.