Is 3.125% for a 15-year refinance a decent deal for the area today? (Phoenix: mortgage, refinancing)

[dura]

So we are thinking of refinancing. Big bank X is offering us 3.125% interest on a 15-year refinance of our primary home in the Phoenix/Mesa area. I'm wondering if this is a good deal for the metro area. Thoughts? I've checked bankrate.com and some no-name banks are offering 2.500% interest and that makes me wonder whether big bank X is a little high or maybe the no-name banks are offering unattainable rates. Anyway, please let me know your thoughts. Thanks!

[DetroitN8V]

Originally Posted by dura

So we are thinking of refinancing. Big bank X is offering us 3.125% interest on a 15-year refinance of our primary home in the Phoenix/Mesa area. I'm wondering if this is a good deal for the metro area. Thoughts? I've checked bankrate.com and some no-name banks are offering 2.500% interest and that makes me wonder whether big bank X is a little high or maybe the no-name banks are offering unattainable rates. Anyway, please let me know your thoughts. Thanks!

Oh jeez. You can't compare mortgage rates without knowing the costs. You can have just about any rate out there but the costs will vary based upon that. Rates shouldn't be localized either.

[dura]

Sorry, mortgage rates and fees are not my thing, but maybe the difference is because big bank X rolls the closing costs in and no-name bank doesn't do that? My guess is that 3.125% interest on a 15-year refinance is okay and that 2.500% is a "perfect" credit profile.

[DetroitN8V]

Originally Posted by dura

Sorry, mortgage rates and fees are not my thing, but maybe the difference is because big bank X rolls the closing costs in and no-name bank doesn't do that? My guess is that 3.125% interest on a 15-year refinance is okay and that 2.500% is a "perfect" credit profile.

Sorry, I should have saved the color commentary. That was rude of me.

Anyway, yes think of interest rate and cost on each side of a teeter-totter. The higher the cost, the lower the rate and vice versa. Also, the stronger your profile is (income, credit, assets, equity in the home), the better the pricing should be. Whether the costs are paid out of pocket or rolled into the loan doesn't impact the pricing.

A quick glance at Quicken Loans' website shows them offering a 15 year fixed at 2.625% at a cost of 2 points (2% of the loan amount). In most cases, as long as you plan on owning the home for a while, it makes sense to buy the rate down a bit. I hope that helps.

[Ponderosa]

Originally Posted by DetroitN8V

Sorry, I should have saved the color commentary. That was rude of me.

Anyway, yes think of interest rate and cost on each side of a teeter-totter. The higher the cost, the lower the rate and vice versa. Also, the stronger your profile is (income, credit, assets, equity in the home), the better the pricing should be. Whether the costs are paid out of pocket or rolled into the loan doesn't impact the pricing.

A quick glance at Quicken Loans' website shows them offering a 15 year fixed at 2.625% at a cost of 2 points (2% of the loan amount). In most cases, as long as you plan on owning the home for a while, it makes sense to buy the rate down a bit. I hope that helps.

Each "point" you pay up front will reduce the rate by about 1/8% or .125. So 2 points on 2.65% is 2.65 + .25 or 2.90. The other thing you have to be wise to is lender fees. They all charge them and call them various things but mostly "origination fee". This is not "points". Sometimes they also charge application fees, etc.



What you should be doing in comparing is looking at what is called APR or annual percentage rate. This puts all the loan offers on the same playing field by treating all points and fees as interest. The one with the lowest APR is the lowest rate - period. Ask the lender what the APR is on the loan.

A kind of rule on thumb is that Big Bank X is going to be about 1/4% higher than a brokered loan that you get from someone like Quicken that is not a bank but a mortgage dealer. If you are going with a HARP loan it is going to be a little more than what you see advertised as there is more risk because you do not have the equity. Same thing if you are putting down less than 20%.

I recently did a HARP refi with Quicken Loans and, to tell the truth, it was the least painful mortgage and pleasant, if you can use that word with mortgage lenders, experience I have ever had. I would recommend giving them a call.

EDIT: On rolling the closing costs in: they will all do that as it is allowed by the investors, primarily Fannie Mae. Your lender will sell your mortgage to an investor before the ink is dry on the note.

[DetroitN8V]

Originally Posted by Ponderosa

Each "point" you pay up front will reduce the rate by about 1/8% or .125. So 2 points on 2.65% is 2.65 + .25 or 2.90. The other thing you have to be wise to is lender fees. They all charge them and call them various things but mostly "origination fee". This is not "points". Sometimes they also charge application fees, etc.

Not necessarily. The 'buy downs' change on a daily basis as does the zero point rate (obviously). One day the zero point rate could be 5% and paying 1/2 pt will get you to 4.625%. The next day, the zero point rate could remain at 5% but it will cost 1.25 pts to get to 4.625%. People far smarter and richer than I, determine the buy downs and there really is no standard 'pay X and get Y'.

Good suggestion to watch out for lender fees. While trickier in the current environment, buy down points can be hidden as lender fees (making them non-tax deductible). It's also an area where the lender, bank, broker can pad their profits. Think doc fees on a car purchase.

Originally Posted by Ponderosa

What you should be doing in comparing is looking at what is called APR or annual percentage rate. This puts all the loan offers on the same playing field by treating all points and fees as interest. The one with the lowest APR is the lowest rate - period. Ask the lender what the APR is on the loan. .

That isn't ALWAYS true. In most cases it is, but in cases of extremes, it's feasible to have a loan with a higher APR because you paid points to get a slightly lower rate and pay less in interest over the long haul than someone who took a zero point rate, and therefore has a higher interest rate but lower APR (with no or little costs). The formula is out of whack and it is possible to have a higher ARP and a lower "true cost of ownership". To make matters worse, there is some wiggle room on what costs lenders include in their APR calculation.

[Potential_Landlord]

Best rates / terms IMO are with Provident Funding, based in California. I am not affiliated with anyone in the mortgage or bank business and as a private citizen have limited knowledge of the business, but they had the best rates & costs when we bought and refied. They are beyond stringent in the process, however, to put it mildly. You can look up there rates online.

[Ponderosa]

Originally Posted by DetroitN8V

Not necessarily. The 'buy downs' change on a daily basis as does the zero point rate (obviously). One day the zero point rate could be 5% and paying 1/2 pt will get you to 4.625%. The next day, the zero point rate could remain at 5% but it will cost 1.25 pts to get to 4.625%. People far smarter and richer than I, determine the buy downs and there really is no standard 'pay X and get Y'.

Good suggestion to watch out for lender fees. While trickier in the current environment, buy down points can be hidden as lender fees (making them non-tax deductible). It's also an area where the lender, bank, broker can pad their profits. Think doc fees on a car purchase.



That's not necessarily true. I can have a loan with a higher APR because I paid 4 points to get a low rate and pay significantly less in interest over the long haul than someone who took a zero point rate and therefore has a higher interest rate but lower APR. The formula is out of whack and it is possible to have a higher ARP and a lower "true cost of ownership".

It is still the lowest rate "out the door". You are adding complicating factors. I did not want to go into all the scenarios of how length of ownership, re-payment behavior etc would affect out of pocket. It is confusing enough as it is. APR is a very useful comparison tool. APR is apples to apples. All else may not be equal, but if you hold the loan to term and pay as agreed, the one with the lowest APR has the lowest interest.

And while we are discussing it, I question the idea to pay points at all for precisely the reasons you state in your post. It is extremely rare to hold a mortgage to term, particularly in this area. Rates are very low right now and that may limit refi opportunities going forward, but there are always job moves and home upgrades to consider. The savings from a lower rate are only realized in the long term, so buying down the rate (or even refi-ing for that matter) are not smart moves if one will not be in the loan for a longer period.

[DetroitN8V]

Originally Posted by Ponderosa

It is still the lowest rate "out the door". I did not want to go into all the scenarios of how length of ownership, re-payment behavior etc would affect out of pocket. It is confusing enough as it is. APR is a very useful comparison tool. APR is apples to apples. All else may not be equal, but if you hold the loan to term and pay as agreed, the one with the lowest APR has the lowest interest.

Not always. Apples to apples, if two people make every payment on a 30 year mortgage and don't sell off early nor make advance payments, it's feasible for a person to pay less in interest over the term than someone else with a lower APR.

[Ponderosa]

Originally Posted by DetroitN8V

Not always. Apples to apples, if two people make every payment on a 30 year mortgage and don't sell off early nor make advance payments, it's feasible for a person to pay less in interest over the term than someone else with a lower APR.

Well, nothing comes to mind, but I won't argue that you can get so convoluted that it might be possible. Whatever, neither I nor, I think, the OP is interested in some contrived scenario to prove you are right. The bottom line here is that, whatever its failings, comparing APRs is the best quick (and maybe dirty) tool a consumer has for comparing the "deal" he is getting on loan products.