Today is the big day to close on our new mortgage. When we built our new house 3 years ago we secured a construction loan that converted automatically to a 7 year ARM with the first 7 years fixed at 5.875%.
Today I’m happy to say we’re going to refinance that loan to a 30 year fixed mortgage at 4.875%. Considering all the negative press about the economy I’ve got to say this deal makes me feel very good. I looked at 20 year terms but the small percentage difference wasn’t worth it to me. I say this because we plan on paying extra each month as if it were at 20 year term but the 30 year term gives us some security if our personal financing ever changes.
Changes In The Mortgage Industry
The fallout from all the foreclosures in this country has been interesting. The last time we closed on a mortgage we were able to easily opt out of escrow for taxes and insurance. Now banks are very skidish about allowing this to the point where you actually have to pay a one time fee in order to secure a loan without escrow payments. This was an important detail for me because I like controling my cash flow when it comes to property taxes and insurance. We ended up paying a 0.25% one time fee for this flexibilty.
The other thing that has happened is you’ll hear brokers speak about a Market Condition fee. Basically all new loans are being hit with a 0.50% market rate fee (some of these are buried in the rate) that is again a one time “insurance” fee of sorts (at least this is what was explained to me by several banks). Supposedly this fee is helping to shore up future problems.
The other interesting part of this process was having the house re-appraised. Prior to construction of the new house it was appraised based on the plans. At that time the market was just beginning to soften and the appraisal came in slightly lower than the cost of the house. That wasn’t all that unusual around here based on what the market was doing at the time. This time the appraisal came in about 10% higher than the first time but still lower than what it would cost today. Fortunately for us we had a significant amount of equity in our home from money we made on our first home.
The bottom line is if you’re thinking about refinancing right now I’d recommend you have an appraisal done before you pay any application fees to a bank. There are many homes now that are not appraising high enough to allow a new mortgage. So it’s definitely worth spending a few hundred bucks on an appraisal to find out where you stand. Also, many banks are now trying to keep loan to value ratios in the 30/70 range to protect themselves.
Great Time To Refinance
If you have a loan in the upper 5% rate now or you have an adjustable rate loan you may want to consider refinancing it now. Rates will probably stay in this range for another few months. However, it’s very likely that rates will go up as the economy recovers much like they did in the late 80’s. I surely never thought I’d have a 30 yr fixed rate for under 5%!!