Wednesday, August 24, 2011

Refinance, Round 2

I refinanced my mortgage back in May of 2009, and it's apparently time to do so again. I'm going about things a bit differently, this time. I'm using the same mortgage broker as last time, though he's with a different company now: First Trust Mortgage. I guess I'm just listening to his advice more now.

Currently, I pay $1400/month, which includes a decent pre-payment amount, and I would currently pay off my mortgage in 230 more months. I decided to formalize that this time around and get a 20-year mortgage, which lowered my rate 0.25% compared to a new 30-year. This puts my required payment at just under $1300/month, which means I'll round up to $1300, of course. So, I'll increase my projected term by 8 months, but save $100/month and pay less in interest.

Another change is that I've opted for a no-cost refinance. Here, the lender pays my closing costs in exchange for an increased rate of 0.25%. I crunched the numbers again, and paying the costs myself for the 0.25% would save me 2 months off the end of my loan. If I refinance again, or pay it off early (likely once I get down to the last few 10,000s in principal), paying the extra money out of pocket now does me little to no good. I don't plan on refinancing again, but I didn't think rates would drop when I refinanced two years ago, yet here I am.

I'm quickly realizing that no-cost refinances don't mean there are no out-of-pocket expenses. I still have to pay the prepaid interest that accumulates between my closing date and the date of my first payment on the new loan. And I have to pay the accumulated interest on my current loan between my last payment and the closing date. I've also opted NOT to waive escrow this time. So, I'm shifting some expenses from December up to now, to the tune of roughly $3300. Add the interest payments, and it'll be more than $4000 out of pocket. It's all money I would be paying this year anyway, though.

One of the main reasons I decided to not waive escrow (I still think this is one of the stupidest terms - you aren't waiving escrow, you're paying in order to not do it) is that I was told you can often call your lender after awhile and request to waive escrow then - with no costs. They don't have to let you do it, but it sounds like they often do. I also have the spare cash now, whereas I didn't have nearly the reserves in 2009. So, I can shift my payments from December to now in order to save $500 or so. And again, if I do refinance again, that money would either be paid to waive escrow again, or I'd be back where I am now.

Another interesting tidbit came from my credit scores. Back in 2009, I averaged around 796, I'm pretty sure. Now, I'm averaging just above the top tier cutoff of 740. I'm pretty sure most of the loss is from getting a credit card back in December that I've been regularly putting large balances on and then paying off again. The combination of the recent credit application, high utilization on that card, and some randomly high activity on a credit card of my parents' that they included me on long ago in order to build my credit history, has resulted in a slight ding on my credit. It still seems to be OK, since I'm over 740 on all three. However, it would be quite annoying to have problems because of these otherwise irrelevant credit score fluctuations. I'll find out within the month!