Basic Refinance/Rate Questions (PMI, loan officer, interest rate, real estate)

[JanuaryGirl]

I am new to homeownership (bought first house this summer at 6.75%), after reading some of these threads I have questions about refinancing or negotiating lower rates since it seems they are on their way down. And please don't jump on me if refinancing is a bad idea, like I said I am new to this and just learning!

1. What does the amount of equity have to do with it? Since we just bought, we don't have a lot of equity, and we were able to put down a small down payment since the house was very cheap compared to our income
2. What type of closing fees are involved? Would it be the same as our original closing, minus real estate agent fees?
3. Is there any reason why our bank would allow us to renegotiate rates? We have been on time with our payments, have ok credit, high income compared to house cost. I guess I'm asking, is it worth asking them?
4. We will probably only own the home for 3-5 years, after that we will sell if markets are better, or preferably rent it out. Does this make refinancing less beneficial? I was thinking, if the payment was lower we could either make more profit off rent or charge lower rent if we go that route.

Thanks in advance if anyone wants to help me out here!

[chet everett]

1. -- If your equity is the same or greater than when you purchased you should be OK -- typically your down payment of 80% or more will mean you don't need PMI. In the past, when equity due to appreciation was soaring, it was easy to do a 'cash out refi' and still have equity sufficient... If your equity has FALLEN you probably are NOT in a position for conventional refi.

2. -- When lenders were plentiful and business was great it was easy to find lenders that would 'eat' a lot of the closing costs to get your business. That MAY happen again. Some lenders will still waive a portion of the closing costs. No real estate agents fees are involved and there would not be any transfer stamps. Some lenders had a policy to re-use appraisal of recent vintage, not sure that will fly right now...

3. -- There are MANY reasons a bank would allow you to modify your loan. Foremost is that they still value you as customer. You sound like a good credit type customer and some lenders realize the value of having such loans in their portfolio. It is always worth asking, if they say NO, shop, let them know who is offering what and they MAY even then say YES...

4. -- Fairly common to find the calculators online that show how big a rate drop will be needed to offset any fees in X number of months. If you plan on keeping it for X+ months it makes sense, if you do not keep for X months you throw away the fees, though there may still be tax benefits...

Top of my head, if you have GOOD credit 6.75% should be beatable RIGHT NOW, in some areas you can get something under 5.375%. Depending on size of loan and fees that should be enough to get your break even within the 3 year window that you are shootin' for.

DO NOT FORGET -- if you can afford to PAY the same monthly amount your are currently BUT get a new loan with LOWER rate you MAY want to continue to PAY more than is required to RETIRE your debt FASTER, can be a great strategy!

[VictorBurek]

I would suggest that you contact a loan officer and look into refinancing. It will be pretty clear if refi'ing makes sense. Just take the costs and divide by the monthly savings. So, if it costs $4000 in closing costs but you save $200 per month, you have a break even point of 20 months. If you are going to be there for more then that then it is a smart move to refinance.

Now if you are planning on keeping it for a long time, maybe as a rental, then look into refinancing, you have a very high interest rate in todays market.

[renriq02]

victor is on the money!

NC has a refinance net benefit form that has to be filled out when a refinance is done...and they require a benefit in refinancing otherwise you can't do the refinance

[VictorBurek]

Thanks renriq.

[susancruzs]

These posters give you great advice, I'd definitely look at getting out from the 6.75. I purchased last year at 6.75 and just did a re-fi for 5.375 with the same bank.

Research and asking questions is a good thing, as they say knowledge is power. Me, I kind of did my purchase last year by the seat of my pants, very quick, dealt with a local bank, re-fi with them, I'm not saying I'm unhappy, not at all, but definitely do not recommend this method.

Fortunately the bank I deal with is excellent, first rate reputation and the gal spent a great deal of time with me explaining every single charge during the purchase and again for the preliminary re-fi paperwork.

[brokerdave]

ive been debating the same thing. i have a 5 year arm at 6.75% jumbo IO and was debating on trying to refi if the rates are forced to 4.5%. it would be great to get low or even mid 5's. could save me over $600+ a month. then i could make extra payments! lol