Re-Financing My Home

After many years of paying rent, I bought my first condo apartment two years ago, back when the US property prices were still relatively hot. I obtained a 30-year fixed mortgage loan, placed a 20% downpayment, and secured a good low interest rate, all thanks to my good credit score of 760. My chosen condo was located in a fantastic neighborhood known for its affluence - low property taxes, excellent property appreciation rate, and good town services and public schools.

With the recent subprime crisis, and the Fed's interest rate cuts that have been going on, it became attractive for me to decide to re-finance. The following article is about my experience on the re-financing process.

The general rule is that refinancing is worth it if the current interest rate on the mortgage is at least two percentage points higher than the market rate. My original interest rate for the fixed 30-year loan was a 6.25%. I was offered as low as 5.5 % by several mortgage brokers and banks. Even though, the difference was not two percentage points, I decided to go throiugh with the re-financing because I calculated that I would be saving more over the long-run. I finally decided to take up an offer from my current lender at 5.62%, even though the interest rate offered was not the lowest I had from my choices. Why did I do that?

Firstly, the current lender already had a demonstrated record of my on-time payments for the past two years, and I reasoned that they would be less likely to give me a stringent look for that reason. Secondly, since they already had all of my information, I reasoned that the re-financing process would be more streamlined, with less complications.

I was right on both counts - more or less. My re-financing application with the current lender was approved without much fuss. I did not have to show documentary proof of my financial assets, or do any tedious paperwork, as I did during my orginal loan application two years ago.

A list of the common fees associated with the re-finance that I came across are: application fee, title insurance, closing attorney's fees, loan origination fee, appraisal fee and mortgage insurance.

This is what I did to minimize the costs of fees:

I chose my own closing attorney (the attorney that did my closing two years ago). His fees are less than if I went with the lender's closing attorney. So do not assume that you have to use the lender's attorney, be sure to ask your lender if you use your own. My attorney also did the title work, which further saved me money.

You can also choose your own appraisal company. I would suggest you do that. I made the mistake of going with the lender's choice of an appraiser. Firstly, it cost more. Secondly, the appraiser did not do a good job - he assesed only the interior of the apartment without taking into consideration the deeded parking, storage, swimming pool, sauna, gardens, entertainment rooms, and the vast land surrounding the apartment building when he appraised the property. Make sure the appraiser takes into consideration all of these factors when apprasing your home.

The appraiser who looked at my condo apartment appraised the value $2000 less than what was needed to have a streamlined re-financing process.

You can do one of several things. Dispute the appraised value. Obtain 3 MLS Listings that meet the following criteria: (a) They have sold within the last 6 months (b) They are within 1 mile of your home. But given the housing downturn, not too many people are selling their properties. Most, especially those in the affluent areas, are holding on to their properties, and weathering the storm. It may be not be worth the trouble to do dispute the value unless you are absoultely sure you have the data to back you up. Or you can finance the remaining portion in a home equity line of credit.

Or you can have your lender make a counter offer, which is what I have done.

I will write more on my re-financing process as it proceeds.