Question by Lisa: Refinancing a loan – questions and pros/cons?
I have a mortgage rate of 7.1%, I have started the process of re-financing and have been offered a 5.6% loan. It will cost me 2,500 in closing fees, but save me 100/month on the remaining 29 years of my loan so well worth it. I assume this is typical so my first question of course is to make sure this is a good deal. My second is I will need to get a re-appraisal of my house. I’ve done a ton of upgrades to my house, tiling a shower and remodeling the whole bathroom, new heating and cooling system, new appliances, new sewer service line (which of course can’t be seen). I’ve been told if I get re-appraised I risk higher insurance premiums and higher property tax. Is this true? If it is is it worth it? Maybe the economy lowers my house value as it is and should I really even worry about all this?
Best answer:
Answer by golferwhoworks
no that is not true at all. these are based on value when you purchased and by the county you live in. Move on with the refi
Know better? Leave your own answer in the comments!
First of all you can use the same insurance as you have currently. If it does not cover enough months your lender will require you to pay the
additional months.
A new appraisal has nothing to do with the county tax system in which the house is located.
Normally new appliances will not add value to a property. The remodeled bath heating and cooling system will add value, however.
I hope this has been of some use to you, good luck.
“FIGHT ON”
People sometimes confuse what an appraisal is for. The tax authorities do a volume appraisal that is not effected by you refinancing your home but would be effected by sales in your area.
Your insurance would also not be effected by a refinance (whether or not you have an appraisal done). If you increase the amount of your loan your mortgage company would of course want sufficient coverage to protect their risk. And insurance companies should always attempt to keep you informed about the risk of being under insured. This has to do with replacement costs and not current appraisals.
Also when the appraiser comes out I think it would help to have copies of any receipts or such for large work done to the home since you bought it.
I think the $2,500 sound expensive. It is in the ballpark however. The $2,500 should cover the cost of the appraisal but ask your lender.
Your lender will order the appraisal.
I do not think there is much risk of taxes going up. Tax authority will never see appraisal. They use their own methods to assign a value to your property.
One thing you can do to leverage this further is use this as an opportunity to reduce to a 15 year loan instead of 30. This is how you can signficantly reduce the cost of your home over time. Your payment will be higher than now but you can use the interest rate reduction to offset this to some degree. 15 year loans are often times even .25% less in interest rate adding to savings.
When we refinanced our old house, it appraised for 2.5 times our original purchase price (a fixer-upper we had fixed up) and yes, we had to have a new appraisal, but no it did not raise our property taxes. If your insurance coverage is insufficient to cover full replacement of the house now that you have made all your improvements you may want to increase your coverage which would raise your premiums, but it would be worth it.
The closing costs you’ve been offered sound reasonable to me. Your break even point on closing costs will be 25 months, so if you are going to be in your house longer than that then it is worth it. 5.6% may not be the lowest rate available, but much depends on your financial situation so be sure to shop around to make sure you are getting the best deal.
Rates depend on a lot of things – loan amount, loan to value, credit score, loan program, loan purpose, property location, type of property, occupancy, to name a few. So without knowing the full story, I can say that 5.6% is a decent rate, it could possibly be a little lower. The borrowers that I am closing right now are locked anywhere between 4.25 and 5.5. I would definitely say that you shouldn’t be paying 7.1% with the way rates are currently. I would also say that $2500 in “closing fees” is high, however if the “closing fees” includes prepaid expenses, that sounds a little better. Your appraisal has no effect on taxes, the government does not see any appraisal that is done. Your taxes may go up on their own if, for example, you needed to get any permits for the work you did — then the taxing bodies will know about the improvements you made. Your insurance will not automatically go up either unless you are asking for a higher loan amount in a cash out refinance. If however your house is appraised for a lot higher, you may want to forward that to your insurance company on your own to make sure that your investment is still protected.
you will have to get a new apprisal, ask the lender what the value needs to be for the loan to go through. as for higher insurence premiuns this would only happen if the lender requires a higher amount of coverage for your home
second- 5.6 is kinda high to me, my par rate today was 5.125% for a 30 year loan with marginal credit (4.625% with perfect credit), this means they are making someting called yield spread on your loan, i will explain. every loan carried cost and those cost can be paid 3 ways, upfront- origionation goes to the people doing your loan as comission, loan discount is LEGALLY SUPPOSED to be “interest paid up front in full” to buy tthe rate down (many companies are using this to make extra income however (ie you are offered a 5.6% rate, prime or par is 5.125%, they are making .4875% (this excess of the rate is yield spread)off of you in interest which = comission., they are also charging you a loan discount of 1% but you are getting a higher rate so it is not being bought down and therefore is commision to the broker/lender along with the origionation.) so your total senario, you are paying 1% origionation, 1% loan discount and not knowing .5% yield spread, the company has made 2.5% in commisions from your loan.
now i am not saying you shouldn’t pay them a commision, but they should be explaining this to you and giving you the option of higher rate which you pay over the term or upfront in your cost. and they shouldn’t be waiting ffor you to ask how to read the TRUTH IN LENDING statement which discloses this either.
another thing to consider is your total cost of the loan, the best way to figure this is your current monthly payment (with out taxes and insurence) times 360, that is what you will be paying for your home-
then do the same thing with the proposed loan to figure your life of the loan savings
as far as only $100 savings I assume you have looked at the total payment to figure this, step back and itemize those payments however. in your payment you have , principle and interest, taxes, insurence and sometimes mortgage insurence (known as PMI or MIP). you TRUE savings could be higher or lower depending on the results
ie your new payment has MI which is $85 and you only have to pay this for about 5-7 years, your true savings is higher for the remaining 25-23 years
now that i’ve thrown alott of info your way and possabily confused you, let me ad, with out seeing a good faith estimate AND a truth in lending no one can tell you if you are making a good move or not, if you want to email those things (with out your info) I will gladly look at it for you and give better advise. AND BEFORE ANYONE SAYS IT I AM NOT TRYING TO GET YOUR LOAN OR SELL YOU ANYTHING. I just hate people getting ripped off in the mortgage industry
At some point, most homeowners will consider refinancing their mortgage. When you refinance, you get a new loan and use the proceeds to pay off the balance of your existing loan. There are many reasons to consider refinancing. the below are some pros and cons :
- To take advantage of lower interest rates, if rates have fallen since you got your original loan
- To move from an adjustable-rate mortgage to a fixed rate mortgage
- To take advantage of the equity built up in your home by borrowing additional amounts when refinancing
But before committing to refinancing your mortgage, it’s important to understand the pros and cons.
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Good Luck……..!