Q: When we bought our house, I read several of Ilyce’s books. They not only empowered me to stand up to mortgage agents, but they also saved us tens of thousands of dollars. I have since passed the books along to a brother-in-law who is looking at buying a home.
I contacted a number of mortgage companies to see what they would offer. We have a 15-year fixed rate mortgage, and we have been paying it off for six years. We live in a very expensive area in Northern Virginia, just south of Washington, and we still owe about $230,000 on the loan. We’ve been diligent about making at least one extra payment each year. The house is worth about $570,000.
My husband is eligible for a VA loan, but the rates are not the best.
So far, here’s the best deal that we have been offered: no appraisal, $1,050 for title work and notary, $570 for some Virginia fees, a processing fee of $1,250, and a $500 good faith deposit.
Our current interest rate is 3.375 percent. One lender is offering us 2.75 percent, but the person who recommended them to us is getting 2.25 percent.
We love all the financial advice that we get from Ilyce’s books and your website, but can you please just write a book exclusively about refinancing?
A: Thank you for the kind words about Ilyce’s book and website.
It can be very confusing to refinance your mortgage, but clearly you’re on the right path. You’re actually out there talking to various lenders and trying to understand the best deal you can get today.
Let’s start with your current mortgage. You owe about $230,000 on the loan, and your house is worth about $570,000. That’s well above the 20 percent equity lenders require for a conventional loan in order to sidestep private mortgage insurance and well below the limits to make the loan a jumbo loan. Jumbo loans have different rates and costs, and frequently those rates and costs are higher.
The interest rate you’re being offered reflects the relatively low risk that you and your husband present to the lender, but it could be that there are other issues in your credit report that are causing some concern. You didn’t mention what your credit score is, but say it was under 760; you might not get the very lowest interest rate but something slightly higher.
It is also possible that your lender isn’t looking for loans like yours right now. If you live in a townhouse or condo, some mortgage lenders don’t want those loans on their books, so they will try to discourage you by offering a slightly higher interest rate. It’s also possible that this lender is not giving you the best rate that might be out there at this time, simply because that’s the way this lender does business — and that’s a reason to look elsewhere.
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While it is a lot more work, it is important that you talk to four or five different kinds of lenders who can each give you their best loan program and fees. We assume you are looking for another 15-year loan, or perhaps even a 10-year loan, and those interest rates should be below what you’ve been quoted. As we went to press, according to Bankrate.com, the average rate for a 15-year fixed refinance was 2.65 percent and the average rate for a 10-year loan was 2.70 percent. Mortgage interest rates change frequently during the day. The mortgage rate you get depends on a variety of factors, but understanding what makes a “home run refinance” might help you sort through your options.
We believe that if you can lower your interest rate, lower your payment, shorten your loan term and keep your closing costs manageable, that’s a home run refinance. But even if you only get two or three of these, refinancing might be worthwhile. You have to weigh the pros and cons.
Start by talking with a few more lenders — perhaps a local credit union, regional bank, mortgage broker and online lender — to understand why you’re not being offered the best rate and terms. Then you can try to negotiate with your lender of choice. It’s really the only way we know to get the best deal.
Unfortunately, a new book isn’t in the offing for this year; but thank you for your feedback and encouragement. Best of luck with your refinance.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask.” She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.
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