After perusing the web for the best mortgage refinance deal out there, it’s evident that the rates, points and fees required by different lending outfits are all over the map. Even worse, in corresponding with some loan officers on a refinance that I’m considering, I’ve found the practices to be rather deceptive (didn’t we learn from recent history? – more on that later). I have yet to actually come across a single repository of the best rates for either a new mortgage or refinancing. Therefore, I’m going to kick it off here. I’m going to post some refinance data I’ve come up with during my research and I’ll ask that readers report here on their findings. After enough entries, I’ll go back and research the best companies in real time and do a new post since rates are subject to change. Directionally, you’d think that the best deal today will still be a good deal in a week or two, comparatively speaking.
UPDATE: Check out 40 and 50 Year Loans as well – I never even knew these existed! Monthly payments are MUCH lower.
Analysis: This one doesn’t look so attractive when considering two points. That’s effectively paying well over $10,000 in total closing fees for me.
Bank of America
Analysis: This is ridiculous. The site touts a “no out-of-pocket cost option”, etc., but it’s really just rolling exhorbitant costs into your mortgage.
Enough is Enough – Let’s hear about your best deal!
List your recent Refinance deals or research in the following order:
- Interest Rate
- Mortgage Term
- Points Paid (especially interested in zero and 1 point options to baseline this analysis)
- Total Other Fees (exclude escrow items, but include all title, appraisal, processing fees, etc.)
- Source! Don’t forget to list the company or link
Now, It’s Your Turn!
Some extra considerations:
- Good Faith Estimate: Make sure you pester the loan officer for a formal Good Faith Estimate. If you don’t see a fee on a line that you’d expect to see one, ask if they can confirm there’s no fee for that entry. For instance, my first GFE had nothing for title, which is normally a pretty big fee (I had refinanced twice before in the early 2000’s). He eventually came back and said it was “an oversight” and added in that fee and another. Imagine my frustration at closing to find out I owed an extra $1000 in fees!
- Perform a Break-Even or NPV Analysis: You’ll want to understand how long it will take to pay off the fees you’re going to incur as a result of this refinance. It’s a simple excel exercise in which you divide your total fees by your savings per month. In my examples, I’m anywhere between 20-40 months on my payback. If you want to get fancy (which I did), factor in the effective savings by considering the lower interest deduction and any other factors that slightly impact the model. Of course, if you’re considering moving, don’t bother. You want to be 95% sure you’re going to remain in your home to at least recoup your investment (nothing in life is 100%).
- Pay-Back Period isn’t Everything! You’ll want to compare apples to apples though. You may have a mortgage with a shorter payback period that isn’t the best for you long term though. If you have a 20 month payback at 4.75% and a 25 month payback with a 4.5% rate, over several years, that lower interest rate is going to save you tens of thousands on a decent sized mortgage. Even in present day dollars, you’re much better off going with the lower rate if the the payback period is only a difference of a few months. Included here is a link to a Net Present Value Analysis that takes this one step further and allows you to assess the true value in present day dollars that you’re realizing by going with a particular deal – especially useful in comparing multiple options.
- Research, Research, Research – That extra hour you spent looking for the lowest rate can end up saving you several hundred dollars per year for 30 years! But hopefully, the research here will save you the trouble!
Please, help our readers to beat the maze of deception here and save everyone some time. Let’s get to the point. For a given mortgage, where is the first place to go?
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