ReFi - I'm peeved!!

[ripvanwinkle]

Ok, with all the talk of feds cutting bank rates I thought I'd look in to a refi to a 10 or 15yr. I owe $70K on the house. I went to my mortgage holder Wells Fargo and talked to them only to find out that since I only owe a "small" amount my rate would be higher than what I have now

 

I'd get a better rate if I borrowed $150K. I dont want to borrow that much. I suppose I could borrow the $150K and then when they hand me the $70K cash out check, cash it and give it back and pay off the mortgage. Does that work? Can I do that?

[Gardening Grandma]

I’d be peeved as well. We are re-fying 101k at 2.875.

Read the terms carefully, you may well be able to just apply the $70k to the principle

[ripvanwinkle]

Mar 16, 2020 22:22:41 GMT -5 Gardening Grandma said:

I’d be peeved as well. We are re-fying 101k at 2.875.

Read the terms carefully, you may well be able to just apply the $70k to the principle

What do you mean? My monthly statement say balance of $70,020. I pay them this and I should be free and clear.

[CCL]

If you borrow the $150k and pay back the $70k you currently owe you'll still owe the $80k difference. Your question doesn't really make sense.

[Deleted]

I don't think there's any way around this. I also have a small mortgage balance- $74K. If you borrow $150K and make an immediate payment of $70K, you'll still owe the $80K (which will be the cash you have on hand). Your payments will continue as if you owed $150K, although it would be paid off a lot faster than the original mortgage term because of the $70K you gave them up front. 

Not worth it, IMO.

I remember the old days in my HCOL are in NJ- then my problem was having a "jumbo" mortgage- too big to sell on the secondary market. They hit you with a higher rate for that, too.

[oped]

What was the rate for 70K? If you don't mind? 

[busymom]

Check with your local credit union, if you've got one nearby, to see if they'll refinance a lower balance.  Based on previous experience with WF, let's just say they're not my favorite mortgage company.  

[hoops902]

Mar 16, 2020 23:53:44 GMT -5 CCL said:

If you borrow the $150k and pay back the $70k you currently owe you'll still owe the $80k difference. Your question doesn't really make sense.

That's what he wants.  He WANTS to borrow $70k at a lower rate...but he can only borrow $150k at the lower rate.  So he wants to borrow $150k, use $70k to pay off his current mortgage, then pay $80k back to the people who just loaned it to him on his new mortgage, owing $70k still...but at the lower rate.

You need to check on the prepayment provision.

[GRG a/k/a goldenrulegirl]

Mar 16, 2020 22:11:10 GMT -5 ripvanwinkle said:

Ok, with all the talk of feds cutting bank rates I thought I'd look in to a refi to a 10 or 15yr. I owe $70K on the house. I went to my mortgage holder Wells Fargo and talked to them only to find out that since I only owe a "small" amount my rate would be higher than what I have now

 

I'd get a better rate if I borrowed $150K. I dont want to borrow that much. I suppose I could borrow the $150K and then when they hand me the $70K cash out check, cash it and give it back and pay off the mortgage. Does that work? Can I do that?

Check for pre-payment penalties or restrictions.

[CCL]

Oh I know how it works. I'm wondering if he realizes his payment will stay at roughly double due to borrowing the extra initially.

[swamp]

Mar 16, 2020 22:11:10 GMT -5 ripvanwinkle said:

Ok, with all the talk of feds cutting bank rates I thought I'd look in to a refi to a 10 or 15yr. I owe $70K on the house. I went to my mortgage holder Wells Fargo and talked to them only to find out that since I only owe a "small" amount my rate would be higher than what I have now

 

I'd get a better rate if I borrowed $150K. I dont want to borrow that much. I suppose I could borrow the $150K and then when they hand me the $70K cash out check, cash it and give it back and pay off the mortgage. Does that work? Can I do that?

yes, you can do that, but you will pay mortgage tax on $150k instead of the $70k (do they have that in your state?) on $150k.   It's .25% in NY.  

[swamp]

Oh,BTW, Wells Fargo sucks ass.  Find another bank. 

[NastyWoman]

Mar 17, 2020 9:38:11 GMT -5 swamp said:

Mar 16, 2020 22:11:10 GMT -5 ripvanwinkle said:

Ok, with all the talk of feds cutting bank rates I thought I'd look in to a refi to a 10 or 15yr. I owe $70K on the house. I went to my mortgage holder Wells Fargo and talked to them only to find out that since I only owe a "small" amount my rate would be higher than what I have now

 

I'd get a better rate if I borrowed $150K. I dont want to borrow that much. I suppose I could borrow the $150K and then when they hand me the $70K cash out check, cash it and give it back and pay off the mortgage. Does that work? Can I do that?

yes, you can do that, but you will pay mortgage tax on $150k instead of the $70k (do they have that in your state?) on $150k.   It's .25% in NY.  

What is a mortgage tax? This is the first time I ever heard about this

[swamp]

Mar 17, 2020 10:18:57 GMT -5 NastyWoman said:

Mar 17, 2020 9:38:11 GMT -5 swamp said:

yes, you can do that, but you will pay mortgage tax on $150k instead of the $70k (do they have that in your state?) on $150k.   It's .25% in NY.  

What is a mortgage tax? This is the first time I ever heard about this

NY requires 1% of the mortgage amount to be paid at the time of filing.   Most is remitted to the state, the county keeps a part.  .75% is paid by the lender, .25% is paid by the borrower.  Credit unions and individuals are exempt from the tax. 

[NastyWoman]

Mar 17, 2020 10:34:17 GMT -5 swamp said:

Mar 17, 2020 10:18:57 GMT -5 NastyWoman said:

What is a mortgage tax? This is the first time I ever heard about this

NY requires 1% of the mortgage amount to be paid at the time of filing.   Most is remitted to the state, the county keeps a part.  .75% is paid by the lender, .25% is paid by the borrower.  Credit unions and individuals are exempt from the tax. 

So it is kind of like a sales tax? Don't give any states ideas on this LOL

[swamp]

Mar 17, 2020 11:11:30 GMT -5 NastyWoman said:

Mar 17, 2020 10:34:17 GMT -5 swamp said:

NY requires 1% of the mortgage amount to be paid at the time of filing.   Most is remitted to the state, the county keeps a part.  .75% is paid by the lender, .25% is paid by the borrower.  Credit unions and individuals are exempt from the tax. 

So it is kind of like a sales tax? Don't give any states ideas on this LOL

yes, i guess that's a good way to describe it. 

NY taxes everything. 

[Tiny]

Mar 17, 2020 10:34:17 GMT -5 swamp said:

Mar 17, 2020 10:18:57 GMT -5 NastyWoman said:

What is a mortgage tax? This is the first time I ever heard about this

NY requires 1% of the mortgage amount to be paid at the time of filing.   Most is remitted to the state, the county keeps a part.  .75% is paid by the lender, .25% is paid by the borrower.  Credit unions and individuals are exempt from the tax. 

Is that a yearly tax?  or like a  tax (you know - fees for "stamps" or a "transfer fee" or whatever)  that you pay when you take the new mortgage?   

[swamp]

Mar 17, 2020 19:35:13 GMT -5 Tiny said:

Mar 17, 2020 10:34:17 GMT -5 swamp said:

NY requires 1% of the mortgage amount to be paid at the time of filing.   Most is remitted to the state, the county keeps a part.  .75% is paid by the lender, .25% is paid by the borrower.  Credit unions and individuals are exempt from the tax. 

Is that a yearly tax?  or like a  tax (you know - fees for "stamps" or a "transfer fee" or whatever)  that you pay when you take the new mortgage?   

Only paid once.  

[ripvanwinkle]

Mar 17, 2020 7:39:13 GMT -5 hoops902 said:

Mar 16, 2020 23:53:44 GMT -5 CCL said:

If you borrow the $150k and pay back the $70k you currently owe you'll still owe the $80k difference. Your question doesn't really make sense.

That's what he wants.  He WANTS to borrow $70k at a lower rate...but he can only borrow $150k at the lower rate.  So he wants to borrow $150k, use $70k to pay off his current mortgage, then pay $80k back to the people who just loaned it to him on his new mortgage, owing $70k still...but at the lower rate.

You need to check on the prepayment provision.

I guess I didn't think this through. I would still owe $70k. Defeats my original objective of paying off the mortgage. Never was good at math.

[oped]

Mar 17, 2020 20:27:49 GMT -5 swamp said:

Mar 17, 2020 19:35:13 GMT -5 Tiny said:

Is that a yearly tax?  or like a  tax (you know - fees for "stamps" or a "transfer fee" or whatever)  that you pay when you take the new mortgage?   

Only paid once.  

Is it on the mortgage or the house purchase?

[swamp]

Mar 19, 2020 5:25:02 GMT -5 oped said:

Mar 17, 2020 20:27:49 GMT -5 swamp said:

Only paid once.  

Is it on the mortgage or the house purchase?

mortgage.  

so you pay on refinance too.  

On a property purchase, the seller pays revenue stamps, a tax of $4 per $1,000 of the sale price.  

[Ryan]

It shouldn't be too much of a surprise that they are charging a higher rate for a lower amount, it takes the same amount of work to process the loan and they'll probably get paid much less for it.  I'd leave it alone.

I have heard a lot of stories of people locking low rates during that 1-2 week period and then having lenders just back out because they are too busy.  When they went to lock elsewhere, rates had increased.

I was able to lock a 30 year at 3.00%.  

[dondub]

Shop around. A CU may be better with the smaller loan amounts. That was great advice. During the latter part of my mortgage broker career I would also turn down loans of that size and refer them to a local S&L that never sold the servicing rights. They had lower paid salaried employees and the servicing would create profit over time.

I don’t believe any regular Fannie/Freddie loans have pre-payment penalties. I’m not sure if you can find a residential loan that does. Commercial loans, such as those on multi-family 5+ units, do and it is considered yield maintenance for the lender.

[azucena]

We just closed yesterday for 2.5% 15 yrs. Squeaked just in for the low rate before the shit hit the fan. Now I will follow phils advice and not prepay at all!!!

[dondub]

Mar 30, 2020 19:51:54 GMT -5 azucena said:

We just closed yesterday for 2.5% 15 yrs. Squeaked just in for the low rate before the shit hit the fan. Now I will follow phils advice and not prepay at all!!!

Why not? And why does Phil say that?

[azucena]

Mar 30, 2020 20:01:01 GMT -5 dondub said:

Mar 30, 2020 19:51:54 GMT -5 azucena said:

We just closed yesterday for 2.5% 15 yrs. Squeaked just in for the low rate before the shit hit the fan. Now I will follow phils advice and not prepay at all!!!

Why not? And why does Phil say that?

Phil is pretty famous (infamous even) for his philosophy that you don't prepay mortgage debt at even 4-5% because you should be investing that money in the market and earning 11% (maybe he's dropped it to 10% lately) over the long term like 30 years.  He usually comes along when someone posts about mortgages and does the math on what a mortgage payment of say $1200/month invested at 11% will accumulate to over 30 yrs.  It's an impressive comparison although I tend to think the 11% might be overstated and likely something like 7-8% would be my own comparison.  Clearly the higher interest rate will "win" every time which is his whole point.

I'm more risk averse that than, so when my mortgage was 4%, I was prepaying it sometimes because I would love to have it paid off particularly given my husband earns way less than I do and has chronic health problems.  Anyway, our recent refi accomplishes both goals - paid off by the time we are 55 just in time to add catch-up contributions to retirement funding and low enough interest that I'm only paying about $50k in interest compared to the $150k that I was previously going to pay at 4% and 30 yrs.

[Wisconsin Beth]

Mar 31, 2020 7:25:31 GMT -5 azucena said:

Mar 30, 2020 20:01:01 GMT -5 dondub said:

Why not? And why does Phil say that?

Phil is pretty famous (infamous even) for his philosophy that you don't prepay mortgage debt at even 4-5% because you should be investing that money in the market and earning 11% (maybe he's dropped it to 10% lately) over the long term like 30 years.  He usually comes along when someone posts about mortgages and does the math on what a mortgage payment of say $1200/month invested at 11% will accumulate to over 30 yrs.  It's an impressive comparison although I tend to think the 11% might be overstated and likely something like 7-8% would be my own comparison.  Clearly the higher interest rate will "win" every time which is his whole point.

I'm more risk averse that than, so when my mortgage was 4%, I was prepaying it sometimes because I would love to have it paid off particularly given my husband earns way less than I do and has chronic health problems.  Anyway, our recent refi accomplishes both goals - paid off by the time we are 55 just in time to add catch-up contributions to retirement funding and low enough interest that I'm only paying about $50k in interest compared to the $150k that I was previously going to pay at 4% and 30 yrs.

This is why we have a "Philification" button too!  So the math can be done even if he doesn't show up on the thread. 

[dondub]

Mar 31, 2020 7:25:31 GMT -5 azucena said:

Mar 30, 2020 20:01:01 GMT -5 dondub said:

Why not? And why does Phil say that?

Phil is pretty famous (infamous even) for his philosophy that you don't prepay mortgage debt at even 4-5% because you should be investing that money in the market and earning 11% (maybe he's dropped it to 10% lately) over the long term like 30 years.  He usually comes along when someone posts about mortgages and does the math on what a mortgage payment of say $1200/month invested at 11% will accumulate to over 30 yrs.  It's an impressive comparison although I tend to think the 11% might be overstated and likely something like 7-8% would be my own comparison.  Clearly the higher interest rate will "win" every time which is his whole point.

I'm more risk averse that than, so when my mortgage was 4%, I was prepaying it sometimes because I would love to have it paid off particularly given my husband earns way less than I do and has chronic health problems.  Anyway, our recent refi accomplishes both goals - paid off by the time we are 55 just in time to add catch-up contributions to retirement funding and low enough interest that I'm only paying about $50k in interest compared to the $150k that I was previously going to pay at 4% and 30 yrs.

Phil may be a follower of the Missed Fortune concept. In which case, you might want an I/O HELOC at prime which allows even more of your funds to be invested as there is no principal. At Phil’s ROI this will allow you to lump sum the mortgage even earlier and free up available cash flow sooner for that retirement rebuild.

However, these sophisticated ideas are not for the average Joe as the tendency is to not keep up with the investing part over time. Takes lots of final discipline whereas paying that mortgage is a monthly must do. YMMV and I wish anyone well that follows the Phil path.

As an added bonus, if going the HELOC route, all incoming funds can be deposited against the HELOC when they arrive thus manipulating the daily balance downward and lowering the required payment small increments at a time.