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 Post subject: Is it ever too early to refinance?
PostPosted: Mon Jan 30, 2012 12:26 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
As many of you may know, my wife and I bought our first house last November. One of our friends told us we would be crazy to ever pay points. I calculated a 33 month payoff term for 1 point, which seemed like a no-brainer to me. Well, I wouldn't say that this is a case of "hindsight is 20/20" (since nobody can predict the future) but the way the chips fell, he happened to be right and I happened to be wrong. Right now the credit union where we bank would pay us an estimated $700 to get the same interest rate as we currently have. $700 is perhaps not enough to compensate for the hassle. However, one of the regrets I have is that we got our loan through a broker, and it was sold (at least once) before the first payment was due. Not only do I already have login information for our credit union’s web site, but they pledge never to sell their mortgage loans. Assuming I could even get approved for a refi loan (not only do we have the inquiries from the first loan on our credit reports, we also opened a new Sears card with which to buy some appliances), is it crazy to do so so soon?


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Mon Jan 30, 2012 12:56 pm 

Joined: Sat Jun 06, 2009 11:49 pm
Posts: 254
Location: Cincinnati, OH
Not sure if I'm following the question correctly or not. Are you debating refinancing your mortgage (that is 15 months old) at the same rate, for the benefit of getting $700 back?

In my opinion the decision to refinance all depends on your long term plan with the house (live their til you die, upgrade in 2 years, etc.), and how long you have been in your current mortgage. Let's say you could knock 0.75 to 1.00% off your interest rate for no closing costs, and do that on a 29 year fixed rate. You are saving on interest, you aren't increasing the term of the mortgage, so its a win win.

There are alot of other factors as well, what type of loan do you currently have (Conforming, FHA, VA, etc.)? What is the interest rate? What is the term (30 year fixed?), what is the outstanding balance?

Also, regarding brokers, isn't the hassle of your loan being sold (which your loan officer should have informed you about during the loan process) worth the fact that you more than likely got a better rate/costs than your local bank? I compete daily with the local credit unions and big banks and very rarely do I get beat, so I'm making the assumption that is why you used the broker in the first place.

_________________
T.C. Strait
Ohio Loan Officer / Manager @ Mortgage Broker
NMLS ID 164070
Ohio Mortgage Solutions
Ohio FHA Mortgage


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Mon Jan 30, 2012 1:15 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
TCstr8 wrote:
Not sure if I'm following the question correctly or not. Are you debating refinancing your mortgage (that is 15 months old) at the same rate, for the benefit of getting $700 back?


Close, except:
The mortgage is not 15 months old, it is just under 3 months old (bought in November 2011)
The $700 back is only one of two benefits. The other is that I would have an easier time managing (tracking, paying, etc) the mortgage. I signed up for an account at my mortgage servicer's web site, but I've already forgotten the login info.

TCstr8 wrote:
There are alot of other factors as well, what type of loan do you currently have (Conforming, FHA, VA, etc.)? What is the interest rate? What is the term (30 year fixed?), what is the outstanding balance?

Conforming, 30 years (of which 29.75 are left), 4% interest rate, 74% or lower LTV.

TCstr8 wrote:
Also, regarding brokers, isn't the hassle of your loan being sold (which your loan officer should have informed you about during the loan process) worth the fact that you more than likely got a better rate/costs than your local bank? I compete daily with the local credit unions and big banks and very rarely do I get beat, so I'm making the assumption that is why you used the broker in the first place.


No, in fact the broker pretty much tied my credit union for the rate/fee combination. I went with them because I believe that the broker would help the transaction proceed smoother and quicker than the credit union. It did proceed smoothly and quickly (of course I have no idea how much, if any, smoother and/or quicker it closed compared to the C.U. loan I did not get).

If I had followed my friends' advice, taking the most negative points I could get my hands on, my credit union would have beat all the brokers I talked to.


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Mon Jan 30, 2012 5:04 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5293
If you had paid points on the original loan they would have been deductible. On a refi they are spread over the term. But I get it - you didn't pay any then and won't now.

I would not do it for $700 because it is a hassle. On the plus side, your appraisal might still be good!

If this just boils down to liking the website of your credit union better then I'd say just get used to the other one. If you automate your payment then you won't really have any interaction with mortgage serving anyway. If you don't automate then you are creating extra work for yourself.


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Tue Jan 31, 2012 5:37 pm 
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Joined: Sun Aug 10, 2008 2:50 pm
Posts: 154
Location: South Florida
I'm partial to knowing who will be handling/owning my loan for the many years to come.

My first-ever mortgage has been sold multiple times and, while I don't technically have any problems with the servicing company who it finally landed with, I absolutely hate not having control over who owns my loan, knowing that it could potentially get passed along again at any time. It's also frustrating because there is a major separation between the servicer and the financial institution ... so whenever I have to call the financial institution to ask about anything significant such as HARP2 eligibility, I have to seriously jump through hoops to get to the right department because it's a special division that handles the mortgages serviced by my servicing company.

With my second loan, I specifically wanted to go with a financial institution that wouldn't sell my loan and who would commit to maintaining the servicing of my loan ... so I would always know who I was dealing with. I very much like this approach and I would definitely do it again. There is tremendous value in peace of mind here.

To put myself in your shoes, if I had the opportunity to refinance my first loan at the same exact interest rate and at no cost (or perhaps even a slight financial incentive) with a company who would commit to keeping my loan on its books AND being the servicer for the life of the loan, I would be seriously tempted. There's not much of a downside ... just some time and of course the risk that something will get screwed up along the way. Not sure about the tax implications. Perhaps the credit union could even sweeten the deal to make your decision easier? For example, I hated that my first loan had the taxes escrowed as part of the mortgage payment ... so eventually I negotiated with them to remove the escrow component, and now I simply budget for and pay the property taxes on my own.


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Wed Feb 01, 2012 9:29 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
frugalcoconut wrote:
Perhaps the credit union could even sweeten the deal to make your decision easier? For example, I hated that my first loan had the taxes escrowed as part of the mortgage payment ... so eventually I negotiated with them to remove the escrow component, and now I simply budget for and pay the property taxes on my own.


Yes, as far as I know, the credit union would not require escrow, which I would definitely consider an advantage. The mortgage broker told me it varied day to day (depending on which lender was offering the best deal that day, I think) and on the day we locked, we would have had to pay extra (1/4 point IIRC) to avoid escrow.


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Wed Feb 15, 2012 2:21 pm 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
The "offer" has gone up to $1500 cash back to refinance our mortgage at the same rate with our credit union. As of today we have had our loan for 90 days (which from what I read, could matter. Or not.)


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Thu Feb 16, 2012 9:27 am 

Joined: Sat Jun 06, 2009 11:49 pm
Posts: 254
Location: Cincinnati, OH
Here is the chart for the Fannie Mae 3.5% coupon Mortgage Backed Securities from November 2011 through today.

http://imageshack.us/photo/my-images/822/getchart.png/

The higher the yield (right side) the better rates are. Its not an exact science as far as what you will see as the end consumer, but will give you an idea.

My point is, the yield has increased roughly 1.4% since November. In a perfect world you would see the same rate from November with 1.4% (of your loan amount) lower in costs, or in your case keeping everything the same you would see 1.4% (of your loan amount) in the form of cash back.

One thing to keep an eye on, is if this loan will be insured by Fannie Mae or Freddie Mac there are restrictions on getting cash back on a refinance that is only paying off your 1st mortgage, compared to paying off a 1st and a 2nd or getting cash out. Some lender, and I assume Credit Unions will have additional restrictions on top of what Fannie Mae and Freddie Mac require.

_________________
T.C. Strait
Ohio Loan Officer / Manager @ Mortgage Broker
NMLS ID 164070
Ohio Mortgage Solutions
Ohio FHA Mortgage


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Wed Mar 14, 2012 11:01 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
Rates have gone back up a bit so I can no longer get $1500 or whatnot in cash just for keeping the same rate.

But on the flip side, after doing our taxes I find that we can't deduct the points we paid on our 2011 taxes (because we got the mortgage in November, and otherwise don't have a lot of itemized deductions, we're taking the standard deduction). So refinancing would let us accelerate the deduction of those points. As it is, I'm going to have to keep track of them for 30 years. :P


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Sun Mar 18, 2012 8:42 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5293
stannius wrote:
But on the flip side, after doing our taxes I find that we can't deduct the points we paid on our 2011 taxes (because we got the mortgage in November, and otherwise don't have a lot of itemized deductions, we're taking the standard deduction). So refinancing would let us accelerate the deduction of those points. As it is, I'm going to have to keep track of them for 30 years. :P


Are you sure about that?


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Sun Mar 18, 2012 9:04 am 

Joined: Sat Jun 06, 2009 11:49 pm
Posts: 254
Location: Cincinnati, OH
http://www.irs.gov/taxtopics/tc504.html

_________________
T.C. Strait
Ohio Loan Officer / Manager @ Mortgage Broker
NMLS ID 164070
Ohio Mortgage Solutions
Ohio FHA Mortgage


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Sun Mar 18, 2012 10:22 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
DoingHomework wrote:
Are you sure about that?


Not 100% sure. But my understanding is that
a) For points paid for a mortgage to buy a home (or substantially improve it), you can choose to deduct them fully in the year paid, or spread them over the life of the loan;
b) For points paid on a refinance, you have to spread them over the life of the loan;
c) For points that are being spread over the life of the loan, if you pay off that loan, all remaining points become deductible in the year you pay it off. (I assume that if you ever want to deduct them, you have to do it that year)


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 Post subject: Re: Is it ever too early to refinance?
PostPosted: Tue Aug 07, 2012 9:07 am 

Joined: Fri Sep 12, 2008 12:29 pm
Posts: 1592
Location: Seattle, WA
I have been regularly watching the rates at our credit union ever since I posted this topic. Two weeks ago, rates were so low that the maximum available rate from our credit union was 3.5% (as compared to our existing mortgage @ 4.0%). And for the privilege, we would receive about $1,300 in negative points. I decided it was worth the effort. I filled out the web application, but it was unable to give me an automated approval. I was surprised that was even an option, anyways. The bank didn't get back to me for a couple days. Then I just got one email to let me know who was assigned to my case. I didn't hear from them until I proactive contacted them late last week. Sadly, in the two weeks since I filed the application, rates have gone up rather significantly. To get that same 3.5% rate, today I would have to pay $1800 out of pocket to get that same rate. An on-paper loss of $3100.

I could also take a higher rate and pay less out of pocket. Based on my following and repeated calculations of just my credit union's rates, I have determined that it's always best to take the highest rate they offer. If I am calculating right, it usually takes 8 to 10 years for points to pay off at our credit union's rates. That's with a simplistic points divided by payment difference calculation, to get a number of months, without taking into account the time value of money.

I have two questions:
1) How are negative points treated with regards to taxes? If points are tax deductible, does that mean negative points are taxable?
2) We've already put in the effort of applying and taken the hit of an inquiry on our credit scores. We haven't paid for the appraisal yet. Should we finish the process, despite rates being higher today than when we applied, or should we cancel our application?


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