The odds are very high that you could save thousands by refinancing your mortgage. Today's loan rates are at their lowest levels in 50 years. Do another refi? Absolutely.
Since the early 1990s, when the rate on 30-year fixed mortgages was about 10 percent, some homeowners have swapped their loan for a cheaper one as many as three to four times. Yet, if you bought a home or refinanced three years ago, your payments are based on 5 percent money. Today, 30-year loans are priced at about 4 percent, with 15-year loans as low as 3.25 percent.
The seductive "direct lender" pitch: The world of mortgage lending has been changing dramatically. So-called "direct lenders" flood the TV channels and Internet with offers to refinance at today's low rates. The seductive pitch: no appraisal, no out-of-pocket expenses or closing costs. Often, the loan application is handled by phone calls and emailed documents.
The truth: Closing costs often are rolled over into the amount borrowed. For example, in recent contacts with a direct lender, I found that $4,500 in closing costs would be involved in refinancing a 30-year, $140,000 mortgage, carrying a 4 percent interest rate. Mortgage lenders would regard these closing costs -- more than 3 percent of the loan amount -- as excessive.
A simplified refi for $250? If you've toyed with the idea of refinancing, to lock in 4 percent financing, ask the loan officer who handled your existing mortgage about a strategy that could save you thousands. Several Lincoln-area mortgage lenders offer a so-called "expedited refinancing" program. The focus is on low closing costs and local loan servicing.
Last week, Cyndy, the lady in my life, and I were able to swap our 5 percent mortgage, which had 27 years to run, for a 4 percent loan, at a cost of just $250. Doing a refi by paying this $250 "origination fee" was possible because the bank that our loan officer works for still has all the documents (including the appraisal) from our 2009 refinancing. The bank's motivation is simple: It wants to earn loan-servicing fees and develop long-term connections with borrowers.
The loan application was completed within two hours because we brought along a file crammed with documents showing current income, two years of tax information, evidence of homeowners coverage, plus bank account, IRA and investment statements.
The best candidates for an expedited refi have had no significant change in their gross income or net worth and have a good credit score (740 or better) and plan no change in the loan amount.
Our loan officer said total closing costs (including the $250 origination fee, any escrow deposits required by the lender and an update of the title insurance) may be close to half a percentage point of the amount refinanced. If mortgage rates were to edge lower by next summer, it could even make sense to do another $250 refi.