Around 37% of all borrowers with 30-year conforming fixed-rate mortgages””who collectively hold about $1.2 trillion of home loans””have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse.
But new refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also show that refinance activity has been muted, considering that rates are so low…
The last time mortgage rates were at current levels, in 2003, refinancing activity hit $2.9 trillion, according to trade publication Inside Mortgage Finance. Last year, refinance volume reached $1.2 trillion, the highest amount since 2003 but not nearly as much as expected, considering how low interest rates have fallen.
You can get some benefit by pre-paying the principal. You pay no fees, and for a higher monthly payment you build up equity and will ultimately pay less interest. I pay an extra $100 per month.
I have received offers to re-finance, but the closing costs and fees are just too high. (They are also an unnecessary rip off)
Rate is only one aspect of the calculation. I have about 5 years left on a 15 year fixed mortgage (5.29% rate). I could refinance almost at a 1% lower rate. After closing costs I would reduce my payment, but the date by which It’d fully pay off my mortgage would only be one month sooner. Therefore it’s simply not worth the hassle.
The article headline doesn’t indicate how many households with 30 year mortgages at 6+% are in similar circumstances – far enough along that they’re mostly paying principal and wouldn’t shorten their term of debt peonage.
#1 – Agree completely! The application process and closing fees have deterred me. My current mortgage is $711 a month at 6.5%. Throwing an extra one or two hundred at the mortgage each month achieves the same result as refinancing w/o the added cost and hassle.
Saying closing costs and fees are a ripoff – without more examination – is the same as saying that a Mercedes is a ripoff because it costs more than a Yugo. The real question is what do you get for the points and fees.
Right now borrowers can get a 30-year fixed at a rate of 5-5.25% with no points and fees. In April 2009, paying points and fees could get a rate as low as 3.875%. What is best depends upon each individual situation. The real problem is that most folks approach their mortgage as a commodity purchase, instead of a financial planning process. Since 2002, most of my clients have fixed rate mortgages in the 4’s and even 3’s, saving them tens or even hundreds of thousands of dollars over those who thought they were getting a deal with “no cost” loans. While a home loan is most Americans’ most important financial transaction, it typically gets less analysis than buying a car. This is a major reason for today’s financial crisis
1. Br. Michael, I agree. And there’s another good reason why my wife and I won’t refinance…….actually two good reasons: First, we paid $100,000 down on our new home seven years ago, following the sale of our townhouse, thus enabling us to knock the bottom out of our mortgage payments while saving us money every month. Secondly, we are both now retired…….she’s 65 and I’m 72……and we think we’re pretty well off financially, and are both in good health.
#4 – I won’t argue with your main points. It pays big to find the best financing on such an important purchase.
But, I built my own house-of-35-year-old-grandiosity in the late 80’s with a construction loan, which was subsequently converted to a conventional mortgage. Unfortunately, the house went about 100% over budget, and it became a tremendous financial burden as i worked weekends and nights to complete the interior over the next ten years. The problem was that even though it backed up to a stream within 50 feet of a large mountain lake, it was not “on the lake,” and as such the property was essentially “over-improved.” Of course, i had not intended on building it for re-sale. Eventually, i found a buyer who would take it off my hands for the remaining mortgage plus some for closing costs.
The last minute negotiations with my lending institution was a nightmare. The original mortgage had been re-sold 4 times and i was now dealing (from the Adirondacks) with some mysterious company in Utah by fax machine. Suddenly, in addition to closing costs, there were weird extra charges amounting to over 13K imposed to get the sale done. It was one of the most frustrating experiences of my life. I estimate I lost 90K on the whole eleven year debacle, and I have no one to blame but myself for designing and building a house w/o enough reserve funds. I never intended to (and did not) send in jingle mail on that house, but I have to say I did threaten to do it, and I threatened that i was going to go into bankruptcy. Fortunately, they capitulated and the sale went through.
And so, when I bought the little 1920, 1100 sq. ft., bungalow i have now I was pleased to get my mortgage from a local family owned bank. A bank that holds all their mortgages, with officers I can call up personally and ask about readjusting escrows and such. I did not get the best mortgage rate, but I can send in extra money on the note, and have control that way over when the mortgage is satisfied. I sleep better.
I would only consider refinancing my mortgage if the terms were actually beneficial to me. Unfortunately, my original mortgage was with Washington Mutual and Countrywide, two completely untrustworthy companies, both of which actually lied to my wife and myself concerning the terms of our mortgages. Bank of America bought out Countrywide Mortgage and refinancing with them would require at least two points upfront for a mortgage reduction which would be relatively insignificant (less than $100/month). It would take five or more years at the present mortgage rate just to pay back the points. Corporate America will take you any way they can. I’m tired of dealing with crooks.
Dan, they tried to do the same thing with our mortgage, and we told them NO……..six times! I told them :Don’t call US……WE’LL call YOU! I guess they finally got the message, because no one’s bothering us any more.
And it should not be necessary to do a new closing just to re-finance with the same lending institution. That is why it is a rip off. They wouldn’t do this unless they stood to make money on points and fees. Just pay the extra principal and you will come out ahead on the interest.
Here’s a question…why do they make you have another title search when you refinance with the same lender? What kind of sense is that? If you don’t refinance, they consider the title clear, but if you do refinance…suddenly they have a question? Then, if you decide to do an equity loan, the title question is no longer a conern again.
What the heck is that all about? And at my lender gave me a good faith estimate of $1800 to do that unnecessary title search. They also listed $200 to make photo copies of the documents. That’s idiotic!
#4 Last time I checked, money [i]is[/i] a commodity. Oh, and these ultra low interest rates are all tax payer funded, if I am not too mistaken, so I don’t see the Mercedes analogy as holding much water. Your question is correct though…what do we consumers get for all those fees that we pay? By the way, the banks still make their money over the lives of the mortgages. Most people that pay it off over a 30 year span end up paying 2.5 times the original mortgage amount, so the argument that the bank is just trying to make a legitimate profit with all those added fees doesn’t hold much water either.
And by the way: I told those government callers who try to sell us all on the idea of accepting their help to go fly a kite, too! They don’t bother us anymore, either!
#7,8,9- You do not seem to understand that you can refinance with no points or fees with most lenders including B of A. So if you can lower your rate, why not?
#10 – Title insurance is required because you may have added a second loan, received a judgment or tax lien, or had work done creating a mechanic’s lien, among others. The lender has to ensure clear title for the new loan. But they all offer a discount on refinance; the insurance cost is usually well under $1,000.
Hi Bill,
Thanks for answering my question. It makes sense to me to redo the title search if you change lenders or increase the amount borrowed…but it still doesn’t make sense to me if the refi is with the same lender as the original mortgage, it’s the same property, and you had a recent appraisal. And it still doesn’t make sense to me that it isn’t needed for an equity loan. Oh, well. Thanks again for trying to answer my questions. I am in no hurry to refi since I have a 5.75% 30 year fixed and the fees to refi are too high. My mortgage is under $100K and at over $5K to refi when the smoke clears, it just isn’t worth it to give the lender over 5% to get a .75% reduced rate. I’m better off just dumping the $5K right on the principle and continuing my over payments.
STN,
A refi is an entirely new loan, and the lender must ensure clear title. And shorter versions ARE required for equity lines; the lender just absorbs the cost.
On the surface it does not appear a refi makes sense for you. But that conclusion could change depending upon your overall plan and other facts.