With interest rates on mortgages falling, I couldn’t help but be intrigued when I saw 3.375% on a 15-year mortgage.
The biggest, problem, I thought, was that we had nowhere near 20% equity in our house, so I wasn’t sure if a re-finance would mean one or more of the following:
- I’d have to bring a big chunk of money to the table to get to the 20% line
- I’d have to start paying an escrow fund (we pay our own taxes & insurance and I would prefer to keep it that way)
- I’d be forced to pay PMI which would probably wipe out some or all of any savings.
Still, 3.375% is 3.375%, especially when you’re currently paying 5.875% on a 30-year note.
My mortgage is with Citi. I went online, as that’s where I do all of my business with them, and filled in a few fields that would allow for a mortgage rep to contact me. I figured it would take a few days.
It took ten minutes. My cell phone rang and I picked it up. I talked to a very nice lady who actually gave me some really good news.
Turns out, under the Making Homes Affordable program, if your loan is backed by Fannie Mae and you do a re-finance with a current lender, you can get a re-finance with the same terms, even if you’re under the 20% equity level. Since our loan is Fannie Mae backed, we would qualify for this. I even confirmed that there are no income thresholds with this provision, and she assured me there are not.
She did a quick run of my wife’s and my credit, and we both got over 800, which is awesome and it locked us in at the 3.375% rate.
Now, I’m not getting my hopes up as I’ve heard so many horror stories about things going wrong, but since many of those seem to be around the foreclosure process, which isn’t us at all, I’m hoping for a smooth sail.
If everything goes according to what we discussed, we could roll the existing mortgage balance into the new loan. We could even roll all closing costsm except for the appraisal and application fees, in as well. I’ve never rolled in closing costs before, but with the difference between the loan and the savings account I use (an Ally Demand notes account) being right around 1%, it’s tempting. We’ll see.
With the loan balance and the high range of the estimated closing cost, our monthly base payment would go up $155 from what we pay today.
Can we handle that? Yes, and then some. Reason being, we currently add at least $200 to our current base payment, as a result of having paid off a student loan balance and deciding to re-direct the monthly payment.
That would result in a monthly increase of over $400 toward principal versus what we’re paying today. Pretty big difference, plus it would result in the loan being paid off four years earlier than if we were continue paying what we pay today.
From a cash flow perspective, it’s pretty much a wash as the payments would be roughly the same. But paying that much more towards principal every month would be a huge boost to our net worth and would allow us to re-build equity in our home faster, which is probably what the entire program is designed to do.
I’ll keep you updated. Not getting my hopes up too much just yet, but really hoping it works out!
Have you re-financed or considered a re-finance? If not, what’s holding you back?Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.