We Refinanced Our Mortgage
With mortgage rates are record lows, did you refinance your loan recently?
We started the refinancing process in late August, when the rate of 15-year fixed mortgage dropped to as low as 3.75% APR. At that time, we were only a few months into our original 15-year loan, which carried an interest rate of 4.25% APR. The main reason for doing a refi so soon was to take advantage of the record low rate to reduce our monthly mortgage bill. And because of the small amount of money we could save from going to the process again (we save less than $80 a month by going from 4.25% to 3.875%), we determined that we will only do a fee-free refinance. When we got our original loan, the closing cost was more than $12,000. If we have to pay the same amount again for the refi, then the money saved will be cut significantly to close to none.
After a few phone calls and emails, we selected a mortgage broker in late August, who happens to work for the same company which arranged our original loan, from the same lender. Talking about coincidence. Initially we thought that since it has been only a few months since we got our original loan from them, the refi should be much easier because they had all our information and we had already went through their verification process. For us nothing changed in terms of employments and incomes. But that was only our wishful thinking. It turned out that not only we had to provide the same documents again that we provided in the original loan application, such as 1040s, pay stubs and bank statements, but also a few more that weren’t requested before. For example, we were also asked to turn in, among others:
- HUD-1 from selling our house in NJ
- Verification of Rent (VOR) from the landlord for our time in the apartment before moving to the house
- Verification of Employment
- NOTE from the last settlement
When I got the request, I was surprised that they needed the HUD-1 from selling our house in New Jersey last year because I could hardly make a connection between the NJ NUD-1 and the refi we were doing. I mean I understand the reason for asking for the HUD-1 was for the lender to be sure that we don’t have other obligations than the current mortgage, but wasn’t this supposed to be done before approving the original loan? The same for the VOR which, in my opinion, should also be checked before, but wasn’t. And for the NOTE, which was part of the settlement package, the lender wants it to make sure that the refinance is solely for the purpose of reducing monthly payment with a lower rate, not any other benefit.
It seemed to me that the same lender was much stricter in the refi than in the original loan application. So I asked our loan broker for the reason behind the request for extra documents. The answer I got was also quite surprising: It’s up to the underwriter at the mortgage company to decide what documents are needed when reviewing the application, like a personal preference. You would expect the lender have some sort of standard procedures in place before issuing a loan after the huge mess created by subprime loans. But if it’s up to the underwriter to determine what kind of supporting documents are needed, then I would say that the chance of missing some critical information is pretty high. For example, we were not asked for the NJ HUD-1 in our original loan application. It’s not that we would be denied the loan had we still owned the house in NJ, but the risk would certainly be different, wouldn’t it?
Anyway, except these additional documents, the whole refinancing process went rather smoothly.And since it was a refi, there was no the anxiety that we experienced during the original loan application. The loan was closed a couple of weeks ago and we did come out ahead: It was a no cost refinance (the only money came out of our pocket went to the escrow account, our loan broker paid everything else including appraisal and credit report fee) and the monthly payment was reduced (though only a small amount). But we also took a step backward after refinancing. Our original loan was $410K and at the time of closing, the balance was at about $403K. The new loan, however, went back to $410K because we felt that, with such a low rate, it is a good move to get some extra cash for some upgrades in the house later.
With the lowered monthly payment, I am still going to pay the same amount every month as I did before, which means that the $80 saved from interest will be put back as additional principal. So even we borrowed more than the original loan balance, the time to pay off the loan won’t be extended too much because of the additional payment.
BTW, the same lender sold our original loan to Wells Fargo after only one month. I expect them to do the same for the new loan.
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