Refi: Weighing fees and rates |
| By Bankrate |
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Recently Bankrate's Holden Lewis answered common questions about refinancing.
Now he's answering more questions, this time dealing with fees and rates. The broad question was developed from specific situations readers described to him. In the coming weeks, he'll continue to answer questions on many aspects of the refinancing dilemma. Lewis' blog, Mortgage Matters, also provides answers and insights about the mortgage crisis.
What should I do about those darn refi fees?
Q: I have a 30-year fixed mortgage with Countrywide at 6.875 percent and I called them to ask for a rate reduction. Instead, they are offering me a refinance at 5.625 percent, paying 2 discount points and over $3,000 in fees. Why do I have to pay all that money if my credit is great (around 750) and they already have my loan?
Q: I am one year into a 30-year mortgage at 6 percent with $344,000 financed. I was offered 5.5 percent yesterday with $500 in closing costs. This is a no-brainer, isn't it?
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| FAQs about refinancing mortgages: part 3 |
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Holden Lewis:
No matter how good your credit is, it takes a lot of labor to underwrite a mortgage, and those people have to be paid. You've got the broker or loan officer who takes the application, the underwriters who decide whether to approve it, scads of people in the lender's back office, plus an appraiser and a title searcher and lots of other people. The fees pay their salaries. If you get a mortgage with no or low fees, you're still paying those salaries, probably with a higher rate.
A refinance is a new loan. It matters little that the current lender already has your loan. Even if you refinance with the same lender, that lender has to review your application anew. The home's value might have changed, or your financial circumstances may have changed.
It can't hurt to shop around. Your FICO score ignores all mortgage credit inquiries made in the last 30 days. And if you had several mortgage-related credit inquiries more than 30 days ago but within a span of two to six weeks, they're counted as one inquiry. So don't be afraid to shop.
If you have a 6 percent loan and you're offered a 5.5 percent loan for $500 in closing fees, it's pretty much a no-brainer. For a $344,000 mortgage, the principal and interest at 6 percent is $2,062 a month; at 5.5 percent, it's $1,953 a month. You save $109 a month. At $500 in fees, you break even in five months.
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