The following is a staff writer post from MikeS. He is a married father of 2. So, with the cat, he ranks number 5 in the house. He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.
You would think that I would have learned this lesson over the years: Always do your homework. Maybe I was just lazy, but my mistake probably will end up costing myself a few hundred dollars. The good news is that I am going to save myself thousands.
The Refinance
A couple of months ago I thought maybe it would make sense to refinance my current mortgage to eliminate the mortgage insurance I was paying. When I bought my home a few years ago, I did not have the 20% necessary for a down payment. As a result, I had to pay mortgage insurance. It was a little over $300 a month. That’s simply money down the drain.
A friend of mine just bought a house, so she recommended the bank that she had used. I contacted them to determine what options I had for refinancing. The bank could do a refinance with a primary mortgage and a home equity loan. The primary would be 30-year fixed at 4%, with the home equity line a variable rate, currently 5%. The total cost of the loan, compared to my current mortgage was basically a wash.
The biggest upside was that this would eliminate the mortgage insurance. It would also save me some money on a monthly basis, roughly a $100. The biggest downside is the variable rate, as I believe interest rates are going up sometime in the future. If and when interest rates rise, so would may payment. I was willing to make this trade off, as I am locked into the mortgage insurance for another 7 years. Since the deal sounded pretty good I started the process of refinancing. What I should have done, was to investigate other lenders to see if I could get a better deal. I sent the money in for the house appraisal to begin the process.
The Issue
The appraisal came in slightly lower than I expected, but still high enough to go through with the refinancing. One of the things that changed was that I would have some additional closing costs that would be rolled into the loan. As all the paperwork was being worked on, I noticed that rates on the bank’s website had come down. Since the rate lock agreement I had signed was only a couple of weeks away from expiring, I inquired what would happen if the lock rate expired before I closed on the mortgage. Turns out, if rates went down, I would not get the benefit of the lower rates. While I understood this, I was not exactly happy about it either. This was the trigger for me to do the homework I should have done all along. So, I contacted a few other lenders to see what other deals were out there.
Our Decision
After discussing my situation with other lenders, I found a better deal for my mortgage. The new deal was all one mortgage. My high credit score qualified me for the lender to pay the mortgage insurance. When I did the math, I will save about $15,000 over the total cost of the loan. Even though this loan had a slightly higher interest rate, 1/8 of a percent (4.125% overall), it had lower closing costs. The first refinancing option also had the home equity portion as well at a higher rate.
The end result is that I will probably lose the money that I paid for the first home appraisal. Had I done my homework initially, I would have found the lowest cost option to start. I guess, since I went with the best option in the end, there is only a little bit of financial pain. I will remember that pain then next time I have to make a financial decision.
