We are Officially Refinanced

by Kevin on April 30, 2009

As I’ve been telling you about for the past several days, we are now officially refinanced. We closed on the new loan last night.

Here’s a summary of how we pulled it off.

1. We were aware of mortgage market conditions.

The possibility of refinancing first came to my attention when I noticed mortgage rates were dropping like a rock. They had dropped earlier in the first quarter, then come back a little bit (if I remember correctly), and then gone down again. When I did my first inquiry with our loan officer, rates were around 5%.

As it stands today, according to Bankrate, 30-year mortgages are averaging 4.87%.

For those unfamiliar with historical mortgage rates this is what is called wow-the-bankers-must-be-really-desperate-or-the-economy-is-really-in-bad-shape type of rates. Check out this chart showing historical mortgage rates since 1971 (through August 2008).  Notice anything significant (other than the fact that rates have dropped much further since August)?

Oh, yea… that part where from roughly 1979 to 1991 a mortgage would cost you 10% at the very least. Of course during 80s things got a little crazy and rates went to 15-18%. Ouch!

Needless to say these are really, really low rates we are seeing these days. We’re not necessarily planning to live here for 30 years. Typically for refinancing to “make sense” you need rates to drop at least 1% from where your current loan is at. Otherwise the difference in payment is too little to justify paying a few thousand dollars in closing costs.

We’ve refinanced 1.625% lower than our original rate. We will pay back our closing costs in roughly 13 months — then from there on out that additional savings is true savings.

2. We shopped rates and negotiated with our current lender.

We first needed to make sure we could even refinance. For those unfamiliar with our situation we have a second mortgage. Mistake for not putting 20% down on the house? Perhaps. I’m not immune to mistakes.

Thankfully our current lender was happy to refinance us even with the second mortgage. We weren’t sure other lenders would be, but I shopped rates at other firms anyways.

As it turned out our current lender was the most competitive offer we had. On top of that we could negotiate closing costs with them because we were current customers. (Some readers have argued I could have done the same thing with other lenders, but again I’m not sure if we could have even refinanced with another lender due to our second mortgage).

On top of lowering our rate 1.625% we saved $500 on closing costs just by asking. Cha-ching!

3.We learned were forced to learn patience.

I have an impatient streak in my blood. I like good customer service, and I like it now.

Refinancing (or a new mortgage for any reason) is not a quick process.

Here’s essentially what our process looked like:

  • get the good faith estimate from the lender,
  • negotiate on costs,
  • lock in the deal (and rate) once you are satisfied from negotiations,
  • wait for the lender to order the appraisal,
  • meet the appraisal guy at your house on your lunch break,
  • wait for the appraisal guy to get the information back to the lender,
  • wait to hear from the lender that everything is good to go and nothing major has changed,
  • schedule the refinancing for as late in the month (more on that tomorrow) and also late in the day so you don’t miss much work,
  • anticipate the closing,
  • whoops suddenly the lender needs to push closing back a few days,
  • get irritated,
  • wait some more,
  • then finally close.

For an impatient guy like me this wasn’t exactly easy. I wanted to close and I wanted to close now. I don’t like hiccups in the process — they make me nervous.

(Deep breath.)

But it worked out.

Now we’re just waiting for the loan to fund (takes four days on a refinance) and then have the bank send us our first statement. I can’t wait to get the first statement because then we can set everything back up electronically and go ahead and make our first payment. (We like to pay one month in advance.)

Of course now that we’re refinanced we are going to start the plan that involved some sacrifice on our part to pay off our second mortgage in under two years.

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QuickHits: Mortgage Refinance and Credit Edition | Prime Time Money
May 3, 2009 at 11:03 am

{ 6 comments }

Garry - thisimprovedlife April 30, 2009 at 10:19 am

Well done.
It is amazing how long the process of refinancing takes. When we did ours a few years back it seemed forever before we got the go ahead. It was during that period that was the most stressful as we knew a housing crash was just around the corner and we were worried they would drop us at the last moment.

Baker @ ManVsDebt April 30, 2009 at 10:38 am

Hey, awesome job! Glad to see you get this bad boy under control. It sounds like you are going to save a ton of money, by being aware of the market and taking control of the situation.

Congrats!

Kevin May 3, 2009 at 1:52 pm

@Garry: I can definitely understand that. When you’re talking hundreds of thousands of dollars a tweak in the interest rate or a delay here or there can really throw a wrench into things. When they originally told us it was delayed I was not a happy camper. But it turned out just fine. 🙂

@Baker: Yup. The best part is the money we’re saving gets thrown on top of the things we said we are going to sacrifice and we’ll leverage the lower interest first mortgage to pay off the higher interest 2nd in about 2 years.

Single Guy Money May 11, 2009 at 1:04 pm

Thanks for reminding me. I need to look into a streamline refi with my current lender.

Kevin May 12, 2009 at 7:38 am

@SGM: If it’s streamlined do you mean you have zero or little cost involved? If so, man, get on it! Rates are soooo low now.

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