I am refinancing


Several articles on this site discuss refinancing from a theoretical point of view. I thought I would share my experience with an actual refinance. I am refinancing for a reason I haven't seen discussed anywhere- to substantially lower my payment. I am moving from a 15 year mortgage to a 3o year mortgage. With my outrageous property taxes added in, my current payment is $4700 a month. Ouch. The new mortgage will be $2400. This lower payment will give me a lot of breathing room if I was to lose my job.

This makes sense for me, because I do not plan to keep this house when I retire (because of the property taxes). If I did plan to keep the house, I would continue with the aggressive 15 year payments.

My refinance will close on Tuesday. I am locked at a 4.75% interest rate on a 30 year, fixed loan. I actually wished it was not locked, because the rates have actually gone down in the past week. Bank of America currently has a 4.25% rate with 2.25 points. But at 4.75%, I really cannot complain.

So, how did I do it? Part good financial habits, part luck. Because I do have good financial habits, I have an 802 credit score. A solid credit score is essential today.  I also am fortunate enough to still have a job (which is why I am doing this now). Finally, because I purchased my home 10 years ago and did not refinance to take the equity out, I have enough equity left for this refinance.

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So how was the process? I sent an email to the bank (one that I am already a customer). A rep called me that evening took my application over the phone and answered my questions. It took about 20 minutes. During this conversation, because I asked, the bank eliminated $900 of closing costs. They also agreed not to make me roll in my home equity line (I did not want to because it has a 2.5% interest rate) and to eliminate my escrow account.

Since then, the bank has called me 3 times as the process went on- most recently to set my closing date.

The bank only asked for a pay stub, proof of homeowner's insurance and proof of a bank account with at least 3 months of mortgage payments in it.

So, the key to refinance in today's credit environment is: excellent credit, verifiable income, and at least 20% equity.  What I found interesting, is that in the mortgage environment, which is supposed to be so difficult now, I was actually asked for less documentation than for previous mortgages. I only had to show a recent pay stub, where previously, I had been asked for W2 forms and/or tax returns.

The bottom line is, if you are in decent financial shape and have equity in your home, this is a great time to refinance. The rates are amazingly low and the process is fairly easy.

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