After I gave up on the Make Home Affordable (ha!) program, I pretty much gave up on refinancing entirely. I guess one benefit of the awful economy, though, is that interest rates remained low and actually continued to drop substantially. When the spread between what I was paying and what was available went over two points…I could no longer ignore it.
The first task was getting quotes. I didn’t want to pay for points, and it was important that closing costs were very reasonable. I didn’t want to refinance at all unless cash flow improved markedly and the savings paid for the costs of obtaining the loan within a year. What I did was use Zillow’s rate quote tool. It gave me better rates than the banks I checked, and it was easy to understand what the costs were going to be. I picked the quote that gave me the best 5 year cost with the lowest closing costs and set the process in motion.
I hate to spend money. But here, I thought, is a no-brainer. I’m dropping my rate more than two points. I’m saving almost $300(!) per month. It’ll pay for itself in less than a year and really help with cash flow. In this market, screw equity…as long as I don’t increase my debt I want more money to stay in my pocket.
So the house needs to be appraised. Anyone who has refinanced traditionally lately probably knows where this is headed already! I prep the house, clean from top to bottom. A string trimmer and leaf blower are purchased so the back yard can be navigated without a machete. Tons of work, money spent, and the guy is in and out in like ten minutes. Ok. Now we wait.
Naturally the appraisal comes in later than promised. There was also an unpleasant surprise within: it came in low. Unreasonably low in my opinion, as it amounted to a 17% drop. Foreclosures and short sales are the new normal though, so it is what it is. This brought the loan-to-value (LTV) to 93%.
This caused a number of things to happen. First, the interest rate. I had been able to float the rate down to 4%. With the low appraisal, that was no longer ‘free’ and I would pay $500 to save about $10 per month. No thanks. So back up it goes to 4.125%. Next, mortgage insurance (PMI). This jumped from $25 on the old mortgage, to $45 anticipating a higher appraisal, to $87 with the new appraisal. Ok, still saving lots of money. A couple of days go by, and the insurer declines the loan for, in the broker’s words, ‘no apparent reason.’ Another company has to be used, and the PMI is now $113. Per month.
Now I’m going to vent a little. My PMI is over five times what it is on the old note, and I am financing the same house with less money and better credit. The reason is really nothing to do with me – it’s the appraisal. Included in the comparisons was a foreclosed property and a house down the street listed for a surprisingly low amount. Two days after the appraisal another house on the street went up for sale, smaller than mine, listed for what I figured my appraisal would come in at.
Still saving over $200 per month, which is incredible considering the PMI increase. I’m just miffed that a low-ball appraisal is basically costing me $80 a month.