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I was under the impression that if you make a one time payment towards the principal to remove the PMI the total monthly payment (Principal + Interest) will be reduced due to lower principal. The PMI on my monthly installment was ridiculously high so i took loans from my brother and brought my LTV to 22% to remove the PMI. I then called Wells Fargo to find out my monthly payment and they just reduced the PMI from my monthly payment. When i asked WF why are they not reducing the overall monthly installment because i now have a higher principal/ equity, they said that my loan is owned by Fannie Mae and WF is only the Servicing company. They said that I will have to call Fannie Mae after 90 days and pay a $ 250 fee to recast/ re-amortize and they will be able to reduce the monthly payment.I don't know why should i wait for 90 days and i find the recasting fees high.
Does anyone know if the $ 250 recasting fees can be waived by Fannie Mae or is there a waiting period ( eg 1 -2 years) to have the re-casting done automatically.
if i'm understanding you correctly, it seems like you are distressed that your payment didn't change (after making a lump payment), and you want to know why you are still paying X/month when you think it should be Y/month.
let's assume your loan is $100000, the interest rate is 5%, and the term is 30 years. your first payment would be $536 (including 416 interest), which means you are building equity at 120/month.
if you pay an additional 20k with that first month, you'll be building equity at ~80/month more (only about 333 interest).
an alternative to recasting would be refinancing; you may even be able to get the original loan rewritten (if it's a very recent loan) to reflect the sum that you just payed. i imagine you would have to show some evidence of possessing this money prior to the loan closing.
as to the recasting fee being waived or refunded... that might be illegal. case in point, it is illegal to refund or waive any of the sales charges on mutual fund purchases.
if i'm understanding you correctly, it seems like you are distressed that your payment didn't change (after making a lump payment), and you want to know why you are still paying X/month when you think it should be Y/month.
let's assume your loan is $100000, the interest rate is 5%, and the term is 30 years. your first payment would be $536 (including 416 interest), which means you are building equity at 120/month.
if you pay an additional 20k with that first month, you'll be building equity at ~80/month more (only about 333 interest).
And the intent of requesting a re-amortization would be have things reset to reduce the payment to reflect the reduced principle. Might help make it easier to pay back bro...
The fee is to help some of reduced interest that the lender was expecting. Those that hold the note get to make the rules... Not saying that either side is "right or wrong" just that a few centuries of legal thought sides with lenders prerogative.
Last edited by chet everett; 12-08-2009 at 12:54 AM..
We agree that the lender sets the fee and delay. The OP is complaining about that. They are further asking if the loan will automatically be recast after some period of time, that does NOT happen.
I have been involved in real estate as both an agent and investor for over two decades, I've helped dozens of people purchase home and helped them understand how the mortgage financing works.
Last edited by Green Irish Eyes; 12-08-2009 at 06:56 AM..
Reason: Edited out responses to now-deleted post
I can see that we agree about the recast (or lack), but i never thought that would happen with any of my loans, and i've prepayed everything. i expect the root problem of the op's question could be that they do not understand the basic premise of the loan: X% APR compound daily for the life of the loan, and there may be a prepayment penalty.
the point of contention seems to be an amount of panic about the loan not automatically being recast (as has already been addressed), an amount of hand-wringing over the cost to recast, and frustration at the cost of something the borrower expected to be part of the package. this is just like a situation that occurs with many of my current "clients", and has been an important issue with past clients: ask questions if you're unsure, i may not have mentioned something you want to know, and your other agents may not tell you everything.
on the topic of what the recast fee covers: interest? seriously? what about the cost of the people it takes to handle the paperwork? furthermore, as i mentioned above, it's the cost of a service, just like any other service from any other service provider.
Last edited by Green Irish Eyes; 12-08-2009 at 06:52 AM..
Reason: Not necessary -- thanks.
I doubt there the actual costs of using a few minutes of some rather low level employee's time and the options built-in to the lender's servicing system are really reflective of the fee charged -- both the delay and fee and designed in part to discourage people from asking for this sort of thing. It is better for the lender if the payments remain the same...
Last edited by Green Irish Eyes; 12-08-2009 at 06:52 AM..
Reason: Deleted references to now-edited posts.
actually, recasting may be better for the lender. as i illustrated above, the 20k lump would increase the amount of the payment applied to the loan every month. because of this, the life of the loan would be drastically shortened. leaving the loan in its current state (assuming the 100k loan above) would shorten the length of the loan by almost 11 years and reduce the total interest payed to a little less than half of the original amount.
granted, this assumes the purpose of the recast is to lower the payment (as it appears), which i expect would restructure it to mature 30 years from the recast. i could be mistaken, but increasing the term seems the only way to reduce the payment.
Thanks for your responses. One thing i have now learnt is ask questions and not assume for Mortgage related issues. Yes, the purpose of recasting is to lower monthly payment.
Agreed now i am paying more towards principal and building equity and this should reduce the overall tenure of the loan but i don't want to further increase my equity- The lender is not giving me returns on my equity and the PMI was coming to an equivalent of 9% pa interest so i had to increase my equity to a certain LTV. These PMI companies will charge high PMI inspite of a house appraised at a higher value and high credit score. I found the online calculators on PMI totally incorrect compared to the actual amount these PMI companies charged. My mortgage broker said we'll have to accept what these PMI companies charge since there are only 2 of them and i actually did'nt knew the PMI amount until the closing date. I don't think the lender have any say on the PMI amount (and they will keep mum because its their insurance for any loan default). Sorry for deflecting from the topic but i think that that these PMI companies should be regulated.
So it appears that Recasting will be done for 30 years from the date of Recasting (assuming I pay the same amount towards the principal at the time of loan origination -will certainly ask them this question when i'll talk to them ). If Recasting fees cannot be reduced/ removed, I'll prefer to refinance at a later date and move my loan to some other lender.
the way it appears, refinancing might be in your best interest at some point. i'm not encouraging you to do it, but i have found that a home-equity loan is the best way to make home ownership work for you. get rid of your credit cards and use a line of credit secured by your home, or just pay all of your other bills with money from the credit line. instead of paying interest on cars and credit, pay interest on the credit line (aka second mortgage) because that interest is tax deductible.
in the future, i would recommend banking with a credit union; with extremely low rates and all the same services and features as a bank, you can't lose.
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