Our Mortgage Refinance

Our Mortgage Refinance

Our Mortgage Refinance

You may remember, a long time ago in a galaxy far, far away, we wrote a post about the impossibilities of refinancing our underwater home. After being beaten down by the radio ads over and over again, I finally decided to call a few of the lenders to see if they were able to help us take advantage of these historically low rates! As you read, this did not work out well, as one place said they couldn’t do our refinance because of my mortgage insurance, and the other place said we couldn’t save any money because of the increase in mortgage insurance. We ran the numbers and posted about how it couldn’t really work out. WRONG!

We Called A Broker

After church one day, I went out for beers with a friend and we got to chatting about our homes. He had purchased his home just before we did, for a similar price and had done some interior work on it. He also told me that he had just refinanced his home, got rid of his MIP and lowered his interest rate. Since he only put 3.5% down, as we had, I wondered how he qualified for the refinance. He told me that his house appraised for more money than they had bought it for, due to his upgrades, and his refinance only required 5% equity! They were saving a few hundred dollars a month now, and got rid of that pesky mortgage insurance. I dismissed that conversation as something I couldn’t do because my house didn’t have any equity and I had already been rejected by two companies.

Luckily, I posted about my mortgage refinance ventures on my blog, and some great people chimed in and recommended I call a broker (Thanks Holly!). This reminded me of the conversation I had a few months earlier, so I reached out to my friend and obtained his broker’s contact information. I sent him an email and he called me back 10 minutes later.

Our Options

After introductions, we got down to the details. I setup a call the next day to go over a questionnaire he had put together to filter out the different mortgage options that we would qualify for. After answering all the basic questions about our existing mortgage and employment information, he came back with 3 refinance options that we could choose from:

Option 1 – We refinance our mortgage and completely get rid of our MIP. The only drawback is that we would have a slightly higher rate than the going 30-year rate, but it would still be a full percent lower than our current rate, or around 4.0%. At $360 a month savings, it would take us about 2 years to break even and make up for the loan fees.

Option 2 – We refinance our mortgage and roll our MIP payment as a lump sum into the mortgage. This would add an extra $7,500 to our mortgage, but our rate would only be 3.5%. At $415 a month savings, it would take us about 3 years to break even and make up for the loan fees and extra MIP. But we would then be saving $55 a month more than option 1.

Option 3 – We refinance our mortgage, but we have to keep our MIP payment. The payment would increase from about $145 a month to about $325 a month. The advantage is that our rate would decrease to 3.25%, which is amazingly low! This option also offers the lowest savings per month because of the MIP increase. At $175 a month savings, it would take us about 3 years to break even and make up for the loan fees (which were much lower than the other 2 options). We would only be saving $175 a month after that, but if we paid our mortgage down to have 22% equity, after the 5 year mark, we could be saving $500 a month!

FHA Streamline

We ended up picking option 3, not because we wanted to, but because it was our only option. The first two loan options required that we have at least 5% equity, so our house would need to appraise for about $8,000 more than we bought it for. That sounds easy enough, but since it has dropped a ton in value (after looking at comparable house sales and values), we would be lucky to appraise for $8,000 LESS than we bought it for. We decided to forego the appraisal (a $525 fee) and go with the FHA Streamline refinance, which does not require an appraisal.

I contacted our broker with our decision, and he sent us a list of items he would need, as well as a ton of paperwork to sign. With the FHA Streamline, we didn’t need to prove our income, or have any equity in our house. All we needed to do was prove that I was employed, and that we indeed own the current mortgage to the house. We had to give him copies of last year’s W-2’s, recent pay stubs (only to prove employment), bank statements, driver’s licenses, and our 1st mortgage note. We scanned in all the paperwork and signed all the required docs, and sent it to him for processing. All of this happened in the past 5 days.

As of right now, we are looking at closing at the end of November. We will need to bring about $1,200 cash up front (for some taxes and fees), but there is no loan origination fee, which pretty much rocks! Also, we are skipping a payment in December due to timing, so that $1,200 is going to feel like no money out of our pocket. Hopefully it’s smooth sailing and savings from here on out, but I will update if there are any changes to the process. Thanks again to everyone who encouraged me to find a broker and try this refinance thing one more time. Third time’s a charm, I guess 🙂

Comments: Have you refinanced recently? How did it go? How long did the process take? Are any of you in the mortgage business? Seriously, brokers have to be making a KILLING in this economy! I haven’t met my broker in person yet, but I bet he drives a Bentley. What do you think?

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  1. Sounds like you are in for a good deal in the longterm! We only recently bought our house and are fixed for 2 1/2 more years at 4.19%
    Savvy Scot recently posted..Can you trust a sole trader without professional indemnity insurance?My Profile

  2. Sounds like you made out quite well. We may have to look into this as well as we’re in a very similar situation. You can’t beat that rate!
    John S @ Frugal Rules recently posted..How Budgeting is Like Potty TrainingMy Profile

  3. Out of all 3 options you picked the right one for the both of you even though it was the only one. Sometimes we have to take what we can get and work with it although it’s not that bad at all the rate you have, it’s pretty darn good. Cheers Mr.CBB
    Canadianbudgetbinder recently posted..Making Money on Parental Leave In CanadaMy Profile

  4. You did pretty well and I think you picked the right one.
    I’m still kinda amazed at the rates in US. Here in Canada you can get a 5 year closed for 2.99%. I closed at 3.45% four years ago, although in hindsight I wish I left it open. Oh well, mortgage is up for renewal soon.
    Eddie recently posted..The Beginner’s Guide to Saving & Investing for Canadians – Review & Giveaway!My Profile

    • Wow, those rates are awesome! 5-1 ARM would have been awesome to lock in in 2009 or so, as rates have just gone down-down-down! But I do like the stability of a fixed-rate mortgage, especially since I just locked 3.25%!

  5. I knew it! Sorry to be so pushy….it’s just the perfect storm of a time to refinance so I knew it would work out for you if you found the right lender.

    You are going to save tens of thousands of interest- way to go!
    Holly@ClubThrifty recently posted..Making a Lot of Money: The Opportunity to Not Be BrokeMy Profile

  6. I want to refinance but don’t want to pay crazy closing cost fees… maybe I should reach out to a broker. My rate right now is 4.625% but my principal is pretty small so any fees makes it cost prohibitive…
    Lance@MoneyLife&More recently posted..Should I Pay Off My Car Loan UpdateMy Profile

  7. Be careful – don’t count your chickens before they hatch on this one. Our refinance, took forever and barely closed during the 90-day window because of delays on the bank’s part. Then when it did, there were all kinds of errors where they tried to charge us about $2K more than they needed to.

    Seriously… I wish you the best of luck with this, but stay on top of the processing department, because they might end up asking you for THE WEIRDEST things. =/
    Mrs PoP @ Planting Our Pennies recently posted..Debt And Wealth Creation: A Delicate SymbiosisMy Profile

    • I’ve definitely heard horror stories, but a buddy who referred this guy didn’t have one, so I’m feeling good about this. Expecially since we were in a similar situation. That being said, FHA Streamline is a government thing, so I don’t expect it to be perfect.

  8. Stan @DebtsnTaxes says:

    We refied this past June and it was a horrible experience. Most of our original paperwork was messed up and it just kept extending our closing date. Hopefully your experience goes better than ours did and goes smoothly for ya. It was worth it though as we went from a 6% to 4% and saved $90k over the life of the loan. You’ll be amazed when you see the final numbers. Good luck!
    Stan @DebtsnTaxes recently posted..To Pay Down Debt or To Invest?My Profile

  9. Adam Hathaway says:

    Congrats on making it work! Usually these things always come down to talking or finding the right people.
    Adam Hathaway recently posted..How I Am Generating Passive Income by Dumping My Savings Account and How You Can TooMy Profile

  10. Glad you didn’t give up. Smart people always look at every option.
    Kim@Eyesonthedollar recently posted..Fun, Fabulous, Free Things To Do in My Favorite Vacation CitiesMy Profile

  11. Took me 100 days to do my last one baby! But, it got done!

    I’m going online from now on!
    Financial Samurai recently posted..When A Severance Package Is Not A Severance PackageMy Profile

  12. I read your article with great interest.

    I’ve been wanting to refinance my residence also, but it, like your house, has been underwater. I may follow your lead and check out the situation with a broker. Maybe it’s worth more than I thought.
    Terry recently posted..Claiming a Tax Exemption When Selling a Home That is Now a RentalMy Profile

  13. Great way to make your decision. You knew exactly all the options and identified which one would be the best for you. It takes a little time and patience but it’s well worth it. You feel comfortable and confident with your financial decisions.
    Ornella @ Moneylicious recently posted..SpringCoin Unveils New Debt Negotiatior ToolMy Profile

  14. Glad to see you were able to refinance after all. What do you plan to do with the savings?
    Andy Hough recently posted..Stuff I Don’t Spend Much Money On – ClothesMy Profile

  15. I’m so glad you listened to Holly (and the other smart commenters that day!) Those fees you wrote about sounded whack. As you know, we just refinanced as well. It took 2 weeks total? It was nothing! You do have to get your property assessed, so just make sure that you remind them of all the updates in case they miss them. Our assessor asked a lot of questions like “any new light fixtures or updates/remodels?” In case they don’t, you might want to point those out, especially all the work you’ve done outside! That adds a lot of value to the property, I’m sure. Good luck!
    Michelle recently posted..Save Money On Eye CareMy Profile

    • Thanks for the encouragement, Michelle. You were totally right, the fees I found were ridiculous, and I found a loan with no origination fee 🙂

      From my understanding, we don’t have an appraisal coming because the FHA Streamline does not require it. I’ll let you know if that changes.

  16. I’m glad you did this and it will work out so well for you. It’s awesome that you got to skip the fee part. I hate paying fees for things like that. I’ve never refinanced a mortgage simply because I have never had a mortgage, but I know a lot of people that have been refinancing lately what with the low interest rates.
    Daisy @ Money Smart Guides recently posted..Middle Class Financial MistakesMy Profile

  17. Jason Clayton | frugal habits says:

    Sounds like you did great… it is always nice to have options and pick the one that works best for you. I can only image that rate will look crazy 5-10 years from now 🙂
    Jason Clayton | frugal habits recently posted..Do You Use the Electronic Envelope System?My Profile


  1. Linkin' It Up: Sayonara Debt | Debts and Taxes says:

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