It was a bright, sunny day. I was writing at my desk. The phone rang. It was a telemarketer asking if I would like to refinance the mortgages on one of my rental houses.
She had already done her “homework” (please excuse the pun) by checking the public records and determined my 15-year-old mortgages indicated I had a substantial equity.
I said I wasn’t interested. But she politely persisted, asking, “Wouldn’t it be worthwhile to have the house appraised since there is no charge for the appraisal and we have over 30 loan plans available. Would sometime tomorrow be convenient?” she asked. Figuring I had nothing to lose, I agreed to meet the lender’s appraiser at the house.
The next day, I met the appraiser at 3 p.m. After he inspected the house, measured it to determine the square footage, and took some photos, he then gave me his preliminary estimate of its market value. Based on his research of recent nearby comparble home sales prices, his appraisal was about $20,000 higher than I expected.
Then he asked what time I would like to meet with the loan officer the next day to discuss my refinance choices. Little did I realize, the appraiser was also a super-salesman! He phoned the branch office to arrange the appointment.
At 1 p.m. the next day I met the loan officer at his office. As I had been asked to do, I brought copies of my deed, latest mortgage balance statements, fire insurance policy and income tax returns for the last two years. The completed appraisal was waiting on the loan officer’s desk.
He asked my permission to run my credit report. I agreed. A few minutes later, the credit report came back showing excellent credit history. We then discussed interest rates, fixed and adjustable rate mortgages, loan terms and cash-out amounts.
Not liking the adjustable rate mortgages offered because none used the safe, slow-moving cost of funds index, I decided on a 30-year fixed rate mortgage. But the loan officer warned me these loans have a prepayment penalty for the first five years so I shouldn’t plan on selling for a least five years. As I have no plans to sell, that was acceptable.
The loan officer then excused himself to have the loan papers prepared on the computer. About 10 minutes later he reappeared with the Regulation Z Truth-in-Lending disclosure calculations, promissory note, mortgage (actually, a deed of trust), loan proceeds disbursement statement and a few other papers for my signature.
He said my two existing mortgages would be paid off by sending checks to the lenders for the loan balances plus their fees, thus saving weeks by not having to request loan payoff statements from the lenders. I left the office in less than two hours.
Four business days later, at 8:30 a.m., the loan officer phoned to ask if I prefer to pick up my $66,000 check or would I like it mailed? For that kind of money, I don’t trust the post office and elected to pick up the check during lunchtime.
Is this super-efficient mortgage refinance experience typical? Unfortunately, not yet. Most old-fashioned mortgage lenders still make borrowers jump through 100 flaming hoops to get a mortgage and take 30 to 60 days to close a typical mortgage loan. But my experience shows how the best mortgage lenders can efficiently and quickly originate mortgage loans.
Oh. I forgot to tell you. I didn’t even have to fill out any loan application! Hopefully, some day soon all mortgage lenders will offer top quality service like this in five business days, or less, from start to finish.
As I did, here are the questions to consider when refinancing:
– Will it pay to refinance my mortgage? The old rule was it pays to refinance if the new interest rate is at least 2 percent below the old mortgage’s interest rate. But today it often pays to refinance if you will save just 1 percent interest since many lenders have cut or eliminated loan fees and included loan charges in the mortgage interest rate.
Another refinance advantage is taking cash out for other investments. But not all lenders allow this alternative, especially on rental property.
– Should I borrow from a bank, s&l, mortgage banker or mortgage broker? Borrow where you get the best service and competitive loan terms. Chasing the lowest interest rate is often futile because low interest rate lenders frequently use dirty tricks like high loan fees and pure-profit unnecessary “garbage fees,” such as for documentation, underwriting and loan processing.
Whenever possible, as I did, deal with a direct lender who has loan approval authority. Watch out for “bait and switch” lenders who promise excellent loan terms but, at the last minute, change the quoted terms. If the lender can’t deliver the promised loan terms, that’s a good time to seek another lender.
An advantage of mortgage brokers is they can shop your loan application among many lenders. This is a special benefit if you have less than perfect qualifications. But a mortgage broker disadvantage is they don’t have loan approval authority, although the best ones know what terms their lenders will approve.
– Is a fixed or adjustable rate mortgage best? If you plan to keep your home more than five years, a fixed-rate mortgage is usually best. Your monthly mortgage payment can never increase (or decrease).
However, consider the adjustable rate mortgages with fixed interest rates for the first three, five or seven years. Ask lots of questions about adjustables, especially what index is used.
The Treasury-bill, CD and LIBOR indexes are much more volatile than the molasses-moving cost of funds index. To the index rate, lenders add a profit margin, usually 2 to 2.5 percent. This interest rate can change monthly, every six months, or annually.
If you only plan to keep your home a few years, an adjustable rate can save interest over a fixed-rate mortgage if it has adequate safeguards.
– Should I get a 15-year or 30-year mortgage? The interest savings can be huge if you can afford the higher monthly payments on a 15-year mortgage. For example, on my refinanced 30-year mortgage I will save over $200,000 interest if I add $300 to each monthly payment to pay it off in 15 years instead of 30 years.
If you aren’t certain you can handle the increased payments on a 15-year mortgage, which often offers a slightly lower interest rate, taking the 30-year mortgage but paying it off like a 15-year mortgage is usually the safest alternative.
– What mortgage refinance fees should I expect to pay? Mortgage lenders are brilliant when it comes to extracting various fees from borrowers. In addition to a loan fee, usually called points (one point equals one percent of the amount borrowed), mortgage refinance costs frequently include title insurance, escrow or attorney fees, appraisal fees and recording fees. These are legitimate costs to expect.
However, watch out for lenders charging various pure-profit “garbage fees” with creative names.
———-
Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
