MORTGAGE REFINANCE IN 2020: I JUST DID IT AND WHAT YOU NEED TO KNOW

Hello friends and welcome back to my blog. The mortgage rate is currently at an all-time low. When I closed my mortgage deal in December 2019, I was locked in at30 years term of 3.75%. According to an article from BankRate written this month, the 30-year fixed-rate average for this week is 0.87 percentage points below the 52-week high of 3.96 percent. If you are thinking about refinancing your home, now is a good time to make it happen. This is the first time I went through the refinance process for this current home and I am sharing my experience with you. 

Shop around for a good rate

Bankrate is my goto site to find out about the low-interest mortgage rate. Other sites that are great to look into are NerdWallet, WellsFargo, and USBank. My lender company further confirmed that the interest rate has been low and there are more clients requesting to refinance. Another way to find out is to call people you know who work at the bank or any friends who are also refinancing their homes to see what rate they got and who they are going with. For instance, my buddy who is a lender at BankOfAmerica let me know what rate they are offer and how much was the closing cost fee. More often banks have higher interest rates and fees so I suggest not going with banks.

Understand your Loan Statement

There are 2 items that you should be familiar with: Escrow and Escrow Balance.

• Escrow: Money mortgage company collects monthly to pay for your property taxes and home insurance on your behalf. To understand more about the property taxes, you can read more about it here.
  • Some people might not want property tax and home insurance including on the monthly mortgage statement because they want a lower monthly mortgage. If that’s the case, they will have to pay for property tax and home insurance on their own. Property tax is unavoidable but you can shop around for home insurance for the best rate.
  • I am currently going with Farmer Insurance and my premium is $884.85.
• Escrow Balance: How much money remains in the escrow account after monthly payment for taxes and insurances. If there aren’t sufficient funds in your account to pay for tax and mortgage insurance, you might expect an increase in your monthly mortgage statement. Once your loan is paid off, which might be 30 years from now, you will get an escrow balance refund.

Take a look at the closing cost

I want to be transparent with you guys so above is the snapshot of what the initial closing cost documentation. After I discussed with my lender representative, the Total Closing Cost in item J is supposed to be around $8,100 and not $4,827. Below is a further breakdown of the closing cost and I will show you where the discrepancy of $3,273 at.

A. Origination Charges or Points

A mortgage point or also called a discount point is a fee that you pay directly to the lender company in order to get a reduced interest rate.  1 point equals 1% of your mortgage amount (basically $1,000 for a $100,000 loan.) Typically, one point means a discount of 0.25 percent from the mortgage rate. Borrowers can purchase more than 1 point if they want to. To understand more about the mortgage point, I recommend to read it here.

I decide not to purchase any point because the rate is already low and I don’t want to spend more money

B. Service I can’t shop for

These are items that I can’t avoid and have to pay out of pocket. Re-fiancing means that I have to go over the same process of purchasing a home so it includes the appraisal fee. I just paid $470 yesterday to get the house appraised again even though I just did that 9 months ago. 

C. Service I can shop for

Even though I can properly look around to get a cheaper rate, but it is definitely easier to go with the same company since they are already the one who is doing the paperwork. 

E. Tax and other government fees

This is where the lender messed up on the estimation. As I am writing this blog, the lender company hasn’t finalized the paperwork so I can’t give you the exact number of how much the amount in this item would be. I am sure it is not $100. 

G. Initial escrow payment at closing

I think this is also the area lender didn’t do correctly. Once I have the final number I will go back and update it. The discrepancy of $3,273 is from the items E and G. 

Final Pros and Cons

My current principal is $470,911. After I refinance, the Principal will be $473,291 because of the additional Conventional Price Adjustment fee of $2,300. So the negatives are:

1. I am going back to 30 years loan. It means that I lose the past 9 months that I have owned the property.
2. Principal increases $2,300 more

The positives are:

1. I save $300 a month of mortgages
2. I will get my escrow balance back from my current mortgage company, which is around $8.500, 10 days after all paperwork are done.

And that is it. If you have any questions I will more then happy to explain that to you. Once again, make sure to COMMENT and SUBSCRIBE. Follow me on IG at TheMontyTools_ for more update. 

Have a great weekend.