# Mortgage Refinance Appraisal



## Cross Cut Saw (Mar 24, 2013)

So I refinancing my mortgage to take advantage of the insanely low rates being offered right now, the closing costs are next to nothing and the only thing standing between me and closing is the appraisal.

I like to worry about things and of course I'm worried about the appraisal.  I think my home is worth every penny I estimated when filling out the paperwork but there's also the part of me that knows every little problem with my home and questions what the appraiser is going to try and dig up...

Anyone like to share their experiences going through this process? 

From what I've read online they make it sound more like a home inspection than an appraisal.

I plan on doing some touch up painting outside and a little spackle and touch ups inside, is this person going to be very critical or just do a walk through?

Thanks!


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## lukem (Mar 24, 2013)

Depends on the appraiser.  They aren't likely to knit pick....value is driven mostly on comparable sales...but you might get a wanna be inspector on a power trip.


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## EatenByLimestone (Mar 24, 2013)

I wouldn't worry.  Different underwriters care for different things depending on whose guidelines they are writing for... but...  When I used to originate mortgages I only had one kicked back for work being done on a house.  It turns out he had cut large holes in the slab the house was on.  The holes were someplace obvious like in the middle of his living room.  He conveniently forgot to tell me about this when we were discussing his loan.  

Later, when I appraised homes for a local bank they didn't care about fire code violations and only had an issue with houses that didn't have walls on the interior.  I documented safety and value issues that I saw, but the only one they didn't accept was the house where I walked in and looked at studs instead of walls.  Local banks that do not sell their loans often have a bit more play in what they accept.  

For a regular Fannie/Freddie loan, if you aren't missing large pieces of the house you should be ok.  Now if the comps aren't there you might have issues.  When the appraiser gets there find out where he is based out of.  I have seen issues where they have chosen comps that fall within underwriting guidelines, but are in different neighborhoods where the value is much lower.  A local appraiser will know about neighborhood the location where blocks count.  One from a neighborhood city or town may not.  

Appraisers are under pressure to make the value needed to do the loan.  If they come up short on too many houses and the loans don't go through, they won't be asked to appraise any more homes.  I used to have different appraisers that I would use for different situations.  Some were rock solid and I knew I'd never have an underwriter challenge their appraisal.  Others could be counted on to find the highest possible value for a house.  Sometimes I'd have to go back to them and ask these appraisers for a few more comps that would support their valuation when the underwriter smelled something fishy.

Now much of this may have changed as I haven't been in the mortgage business for a few years and was away from the Fannie/Freddie thing for a few years more than that.  


Matt


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## woodgeek (Mar 25, 2013)

Done this three times, and all three times they breezed through counting bedrooms, baths, computing square footage with a laser rangefinder, and taking in/outdoor photos. Basically verifying the major cost/value attributes of the house in person. As for detailing, they assign every house something like a 5 point condition score, where 1 is a wreck, and 5 is better homes and gardens, I got a 3, 'average'. No bigs. I printed out a 5 line summary sheet of major work done on my house (new heater, roof, etc, with prices and dates). They always took the sheet politely, and once or twice it was reflected in the report description.

And then they go away and compute a price based upon local recent sales. With each comp, they then 'correct' the comp price using a table of attribute values, like you have a 2 car garage, they have a 1 car garage, add $5k to the comp price. The comp has 0.5 more baths, subtract $10k to estimate your price. Then they average three (corrected) comp prices and you are done.

I am convinced the process is rigged. As Matt said, if the bank wants to make the loan, the value will come in where you want/need, if not it won't. One of the three times I appraised, it was to refi with my **current** lender. Guy did the exact same process as the others, but threw out all area comps that sold above a certain price (which happened to be roughly my estimated value). Not surprisingly, throwing out the expensive half of the comps, pulled down the appraisal 100k and queered the deal. Went to a different lender (that wanted my business) shortly thereafter, got a 'good' appraisal and refi'ed.

The other two times, I was able to estimate the appraisal price myself looking at comp sales in zillow, to within 2%. Pick the closest recent sales comps in your area with the same bedroom and bath, compute their $$/sqft, average those numbers, and multiply by your square footage to estimate your price. Throw out comps next to the elementary school or on a cul de sac (unless you have those attributes).

IOW, don't sweat the small stuff. If the appraisal comes in very different from your estimate, walk away and try another lender.


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## SIERRADMAX (Mar 25, 2013)

Did you talk with your current mortgage holder? Most banks today want to keep your business. I spoke with mine, told them I was shopping around for the best rate to refinance and they immediately returned with a lower rate (competitive) and told me it would only be a one time rate modification fee. No adjustment to my amortization table. Saved me $150/mo. for a $700 fee. No closing costs, no appraisal fee.

If you do refinance. Be prepared for the possibility of banks to fund 80% of the appraised value. Also, those advertised low APR rates are sometimes to get you in the door. If they find one thing wrong or they don't like, the rate is subject to change.


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## Ehouse (Mar 25, 2013)

+1 on woodgeek, the game is rigged.  If you're doing a refi with your currant lender, ask if you qualify for a fast track modification.  Then you don't need a new appraisal.  Many lenders have this as an incentive but may take it off the table at times.


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## Highbeam (Mar 25, 2013)

Thing is you will pay for the appraisal. At least I always have had to. Like 500$. The last appraisal I had queered the deal and I had to eat 500$. It is rigged and pretty stupid. They find what they consider to be comparables which are really just bedroom and bathroom counts plus SF, the important stuff doesn't count like neighborhood, land size, land quality, build quality. It is pretty ridiculous.

Use your assessed value. If the assessor's value would queer the loan then don't waste your money on the appraisal.


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## ironpony (Mar 25, 2013)

agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.


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## woodgeek (Mar 25, 2013)

agree with HB and IP, when I ate my appraisal, I was out $300. Grrr.  takes money to (save) money.


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## EatenByLimestone (Mar 25, 2013)

ironpony said:


> agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
> Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.


 

As somebody who has been inside that industry, I don't think it is rigged.  If it is, than it is rigged toward the buyer.  The appraiser really wants the loan to go through so he gets future business.  The loan officer wants to do the loan.  He most likely lives off commission (I know I did) and really wants to feed the family.  The underwriter's job is to prove that the loan is of a certain quality.  I'm not certain on exactly how an underwriter is paid, as we used underwriters employed by private mortgage companies and also underwriters who worked in house of the company we planned to sell the loan to.  I know the underwriters who worked for the mortgage insurance company did not get paid until a loan closes so they had motivation to get a loan closed also.  

Different lenders look for certain attributes for their loan portfolio.  The loan officer's job is to know which lenders will pay attention to certain details and which lenders will not.  He will steer the loan toward the correct lender.  

There are also different types of appraisals.  Which one the appraiser must complete depends on your loan to value, the program guidelines and your strength as a borrower.  Appraisals can be as simple as a dive by where they only have to make sure there is a front on the building (I've literally heard of stories where the house was in a fire and there wasn't a back on the building) to a couple different types of "full appraisals"  I remember paying prices from $175 for drive by appraisals to something like $450+ for a top of the line full appraisal.  There might also be additional charges for additional forms that needed to be completed.  It all varies.  All of the loan companies that I worked for charged something like $350 as a standard appraisal fee since we didn't know which appraisal we would need to have completed.  Sometimes you made out, sometimes you had to eat a little.  

Some lenders were starting to allow electronic appraisals on smaller loans when I was going out.  I almost got burned on this myself on a home equity.  The machine pulled in a HUD house as a comparable.  I caught it and made them use a different comparable.  In that case they allowed me to find it as I was an appraiser for the bank, but most of the time the underwriter would catch it and make them go find a new comparable.  


As for the in law apartment and a bank only interested in what something sells for, what should they be interested in?  If you default on the loan, are they going to get market value for the collateral or are they going to get what you paid for it?  I used to run into this all the time with people who would take out a loan after they put in new windows or something... "I put $9K of new windows in the house.  It should be worth $9K more."  Well, no, because the next buyer might not care if there are new windows in it or not.  The only thing a mortgage company cares about is the resale value.  They need to protect themselves.  This is why they mandate you have insurance.  Once you own the property outright you are free to cancel all insurance.  The value added for the improvement of the property must be supported by the comps.



Matt


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## Highbeam (Mar 25, 2013)

EatenByLimestone said:


> As for the in law apartment and a bank only interested in what something sells for, what should they be interested in? If you default on the loan, are they going to get market value for the collateral or are they going to get what you paid for it? I used to run into this all the time with people who would take out a loan after they put in new windows or something... "I put $9K of new windows in the house. It should be worth $9K more." Well, no, because the next buyer might not care if there are new windows in it or not. The only thing a mortgage company cares about is the resale value.


 
Exactly right. Very few home improvements result in a 100% return towards the home value so most are losing investments financially. Do home improvements for your own enjoyment or don't do them at all.


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## EatenByLimestone (Mar 25, 2013)

Doing the work yourself can make it more of an investment.  Things like finishing off an attic in a cape can add a lot of square footage and bedrooms for very little cash outlay.  Curb appeal stuff also can stray into this category as can paint.  I'd never try to sell a house with old paint on the walls.  

Matt


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## ironpony (Mar 25, 2013)

Matt I agree with you on all points, but do not call it an appraisal, you are not truly appraising it, you are doing comps to see what it will bring in fair market value. I have no problem with that just do not insult me by saying the building is add 10000. Also the refi was less than 50% of market value so it did not matter, I think once the appraiser seen that he really did not do a true value.


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## EatenByLimestone (Mar 26, 2013)

Since the loan to value was so low I imagine the loan officer chose the conservative appraiser whose appraisal would sail through the underwriting process without making any waves.  That is quite a large out building and there may not be good comps for that.  I did have a few homes that had businesses attached where I had to be tricky in my reporting.  I remember one that had a commercial welding shop in the back.  I was a residential appraiser and if I remember correctly we were able to put it in as a 5 car garage or something like that.  I don't know if the underwriter accepted it.  The bank I was working for was really picky about homes with businesses there.  There are a lot of 2 family homes in my area where the ground floor was built as a business.  Those were automatic denials.  Other than that, since I wasn't the appraiser I can't give a better explanation.  I hope the loan went through without any issues.

Matt


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## jharkin (Mar 26, 2013)

I went through this process in the fall and was pleasantly surprised to get the appraisal back over 10% HIGHER than what I expected or what any of the robosites (zillow, trulia) predicted. That allowed me to drop PMI and escrows saving me a significant amount of money and hassle.

However I have done a lot or work in the last 3 years, made sure everything LOOKS good, was there when the appraiser viewed the place to point out everything I fixed, and gave him a sheet listing all the improvements made and what it cost me. You have more influence on the process than you might expect and there is no law saying you cant sweet talk the evaluator (at least here). Superficial impressions count for a lot more than they should, make that work to _your_ advantage.


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## Ehouse (Mar 26, 2013)

An independant mortgage broker recently told me that the game has changed from the banks leaning on the appraiser one way or the other, to the home owner having to take the initiative to sell a higher value.


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## Highbeam (Mar 26, 2013)

EatenByLimestone said:


> Doing the work yourself can make it more of an investment. Things like finishing off an attic in a cape can add a lot of square footage and bedrooms for very little cash outlay. Curb appeal stuff also can stray into this category as can paint. I'd never try to sell a house with old paint on the walls.
> 
> Matt


 
It's the things like building a shop in the yard or adding a hot tub that will never pay back. DIY guys can get additional SF to pay off but to hire out the job as most do will generally be a loser. Curb appeal stuff and paint are maintenance, everybody should be maintaining the home. Mowing the lawn will make an impression too.


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## Cross Cut Saw (Mar 26, 2013)

Thanks for all of the input everyone!

I'm nervous about what it will appraise at mostly do to it being one of the nicer homes in the area. 

I'm going to make sure I'm there or that I at least have a list of the major projects undertaken in the past two years that have (in my opinion) added significant value to the home, my big fancy woodstove being one of them!

I'm going to spend some time doing some cosmetic touch ups and pretty much have it set up like it's an open house and I'm looking to sell, it won't take all that much work and it can't hurt, right?

Do they take into consideration things like appliances? 

Thanks again!


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## Highbeam (Mar 26, 2013)

You are looking to sell it. You are trying to sell it to the lender. Appliances matter if the appraisal is thorough. They will be reflected in the "condition" score.


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## lukem (Mar 26, 2013)

When I bought this house the bank made me get it appraised.  The appraiser called me and asked what the purchase price was and I told him $XXX,XXX.  The days later the bank called and said the appraisal was received...and everything looked good.  It appraised for the exact amount I told him.  Rip-off.


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## Cross Cut Saw (Mar 26, 2013)

Oh crap, just got the call, appraisal tomorrow!?!

Luckily we keep the house up well and it won't be that hard to get it up to speed.  There are a few things I wanted to address but oh well. 
I'll let everyone know how it goes...


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## ironpony (Mar 26, 2013)

Cross Cut Saw said:


> Oh crap, just got the call, appraisal tomorrow!?!
> 
> Luckily we keep the house up well and it won't be that hard to get it up to speed. There are a few things I wanted to address but oh well.
> I'll let everyone know how it goes...


 



you will be fine, he will walk in look around ask a few questions, maybe a couple of measurements twenty minutes tops.
go back to office pull 3 comps compare yours to them, wallah price of yours

the last couple I had out to my place could not even figure up the square footage, they came out, went back to the office and got thier supervisor, called in another friend then they stood there looking at me with thier eyes glazed over and ask me how am I going to figure this out?

my house is shaped like the B2 bomber kinda delta over a trapezoid,30 and 60 degree corners, I just chuckle and say go for it I will tell you if your close. suprisingly they were only 700 square feet off.


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## BrotherBart (Mar 26, 2013)

When I was transferred the company bought my house. They got three separate appraisals and went with the middle one. I appealed it and told them the name of the appraisal company that submitted the low one and what they missed in comps. I was told that there was no way I could know which company a particular appraisal came from since the names weren't on the copies they gave me.

I told them to pull out all three and look at how the firewood on the deck was arraigned in the pics from each appraisal.


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## Swedishchef (Mar 26, 2013)

I got my house appraised last year because I wanted a HELOC. The bank requested an appraisal at their cost (I am part of a VIP package...which essentially means I owe them too much money LOL).

Unfortunately around here appraisers are rare: the nearest one lives 150 miles away. They are part of a provincially regulated body and are part of a prof. association. In Quebec, you need a DEGREE in order to perform appraisals.

The first thing he says when he is inside the house is "houses around here cost too much". I was like..great start. He ended up making errors on the report (type of flooring, type of basement insulation (I have  my walls spray foamed vs foam boards)...he even said I didn't have a basement entrance yet there are pics of the entrances attached to his report!).

In the end I expected my house to be appraised about 10K more but oh well...

Keep us posted!

Andrew


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## basod (Mar 28, 2013)

I'm curious to hear what the closing costs are looking like on these advertised 2.75% refi's.

When I dropped from 6.25 to 4.75  a few years ago I believe it was ~$3900 total.   Lender said they were struggling to stay afloat and had to make it up somewhere - yup
Went through they same BS with the appraisal, the guy actually had the nads to ask me if I knew of any comps??? Dude I'm paying $300 for you drive out here for 20mins and I need to do your job for you to?  So I gave him the 4 houses that had been on the market for ~3yrs in the 350k range.  I'd toured each of them for my own personal education  most needed some work and all had similar acrerage 

For those with PMI I guess this new law will require them to pay it for the life of the loan(unless they achieve 20% equity and then refi AGAIN)


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## Cross Cut Saw (Mar 28, 2013)

$166 + funding the escrow accounts!

About $1700 for the property taxes and $400 for the insurance.  These are held in escrow by the other lender though and will be refunded about 30 days after the closing.

The closing and title fees come up to $856, and the Appraisal cost $405 but the lender is giving me a credit of $1095 towards the fees.

It's a 5/1 ARM (fixed 5 years, adjusts annually after that, which isn't advisable unless you know you're moving) at 2.625%.


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## Highbeam (Mar 28, 2013)

An ARM!


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## basod (Mar 28, 2013)

Cross Cut Saw said:


> $166 + funding the escrow accounts!
> 
> About $1700 for the property taxes and $400 for the insurance. These are held in escrow by the other lender though and will be refunded about 30 days after the closing.
> 
> ...


 
Sounds like a pretty good deal.  I don't know if my current lender is intersted a refi like that, to keep my business as I should have the house paid off in a couple years
When I was running the numbers @ 2.75 I was assuming 2-3k in closing which would still save me a ~2k with my current (self imposed) accelerated payments and set me in the same 2 yrs payoff window.

Closing for $166??? I am truely amazed  Good for you


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## Cross Cut Saw (Mar 28, 2013)

Highbeam said:


> An ARM!


 
You no like my ARM?!?

There's no way we're here more than 2 years and I needed to get cash out to pay for the deductible on knee surgery I need.  Instead of ANOTHER line of credit I can use this to pay off my credit cards, pay for my insurance deductible, and put about $350 per month into my pocket with the lower mortgage and no credit card bills...


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## basod (Mar 28, 2013)

Highbeam said:


> An ARM!


They get a bad rap because less than financialy intelligent people get into them.
It's a bigger gamble on the new house purchase - but can be a wise option if you are moving or paying off early


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## woodgeek (Mar 28, 2013)

basod said:


> I'm curious to hear what the closing costs are looking like on these advertised 2.75% refi's.
> 
> When I dropped from 6.25 to 4.75 a few years ago I believe it was ~$3900 total. Lender said they were struggling to stay afloat and had to make it up somewhere - yup
> Went through they same BS with the appraisal, the guy actually had the nads to ask me if I knew of any comps??? Dude I'm paying $300 for you drive out here for 20mins and I need to do your job for you to? So I gave him the 4 houses that had been on the market for ~3yrs in the 350k range. I'd toured each of them for my own personal education most needed some work and all had similar acrerage
> ...


 
Around here the transaction costs on a refi are ~0.8% of the loan size, when the dust settles, either out of your pocket or rolled into the loan. The brokers get more like 5x that amount from the bank as a finders fee.  IOW, they work for the banks....the amount they charge you is to keep you from doing it too much.


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## Cross Cut Saw (Mar 28, 2013)

basod said:


> They get a bad rap because less than financialy intelligent people get into them.
> It's a bigger gamble on the new house purchase - but can be a wise option if you are moving or paying off early


 
With today's rates even the WORST I could do would be comparable to what would have been considered decent to a little high 10 years ago.

The absolute MOST it can adjust to over the entire 30 years is 7.625 percent, nothing I would want to do but I wouldn't lose my house over it.


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## Swedishchef (Mar 28, 2013)

Do you guys not have IRD in the US? IRD = Interest Rate Differentials. It prevents people from backing out of mrotgages continuously. It is a complex calculation based on how much you mortgaged, the rate you have, the discount from the posted rate and the rate you want to get.

Only closing fees here are lawyer fees..$1000 or so for a mortgage.

Andrew


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## basod (Mar 28, 2013)

Swedishchef said:


> Do you guys not have IRD in the US? IRD = Interest Rate Differentials. It prevents people from backing out of mrotgages continuously. It is a complex calculation based on how much you mortgaged, the rate you have, the discount from the posted rate and the rate you want to get.
> 
> Only closing fees here are lawyer fees..$1000 or so for a mortgage.
> 
> Andrew


Sounds like a French thing to me
We have Title fees,notary fees (the lawyers) appraisal etc.  The banks typically have original fees.  Some lenders have one fee and not the other, I usually put them all in a spreadsheet side-side and run the numbers before picking one.  Once had a local mortgage broker give me the run around for a $6500 closing cost and a worse rate...everybodys kids need new shoes


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## Swedishchef (Mar 28, 2013)

Lol...it's not a fremch thing, it is a Canadian thing, Eh?

When refinancing (mortgaging a larger amount due to consolidation of debt or other expenses) you simply pay the notary fees. If you break your mortgage before its up, that is when you get into IRD or 3 months interest, whatever is larger.

I am looking at renewing my mortgage...2.89 fixed for 5 years is what all the big 6 have offered me..sounds a lot less complicated than your ARM...lol


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## midwestcoast (Mar 28, 2013)

That's a heck of a deal right there!  We just did a Loan Modification to 3.3% for a 20 year fixed. Total fees were $500. I figured I was saving a bunch on the closing fees & maybe taking a small hit on the rate. Maybe all I saved was the hassle of a full re-fi?  
Anyway we are still saving $ each month, knocked years off the term AND it was the easiest thing I've ever done so we're happy campers!


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## Swedishchef (Mar 28, 2013)

midwestcoast said:


> That's a heck of a deal right there! We just did a Loan Modification to 3.3% for a 20 year fixed. Total fees were $500. I figured I was saving a bunch on the closing fees & maybe taking a small hit on the rate. Maybe all I saved was the hassle of a full re-fi?
> Anyway we are still saving $ each month, knocked years off the term AND it was the easiest thing I've ever done so we're happy campers!


 That  is a great deal for 20 year fixed! 20 years is not popular in Canada...not many people go for more than 5. If they offered me that I would jump on it right away


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## arngnick (Mar 28, 2013)

Be nice and try not to stick your foot in your mouth just agree and and don't be pushy. Most are ok...some are a**holes...some have no clue and guess. Get things clean as possible make sure anything unsafe such as a cover off on an eletrical panel is taken care of and you should be fine.


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## EatenByLimestone (Mar 29, 2013)

I never would have asked a client for comps, but just to let you know, the house viewing is the easy part.  I've spent hours in the back office on some properties with difficult layouts or unusual features.  

The appraiser wants to find the houses that are closest to yours that sold the most recently.  As I said in a thread above, if he isn't local he might pick a house that appeared to match yours in a lower valued neighborhood.  If it is within a mile or two there is a great chance that it would pass an underwriter. Now, if he picked 3 of those you might have undervalued your property.  

What type of loan other than FHA can you not get rid of mortgage insurance?  The most I ever heard of a company needing was a new appraisal to prove you had 20% equity in the house.  I've been out of the business for a while though.   

As far as expected closing costs, sign up on Lending Tree and you should have 3 quotes the next day or so.  Now lending tree has a fee associated with every loan they close and that is a percentage of the loan amount.  This should be disclosed in the paperwork though.  What fees did the $3900 cover?   Was there any escrow involved?  Points?  Origination fees?  Depending on which day you close you will have a different amount of days of interest charged at closing.  This isn't the fault of the lender.  There are often fees associated with the title company you might have closed at.  Different title companies have much different fee schedules and I'm guilty of choosing one in the past that charged a little more, but would quickly get the work done.  This way I could get it through the underwriter faster and have you closing in fewer days.  

Matt


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## basod (Mar 29, 2013)

EatenByLimestone said:


> I never would have asked a client for comps, but just to let you know, the house viewing is the easy part. I've spent hours in the back office on some properties with difficult layouts or unusual features.
> 
> The appraiser wants to find the houses that are closest to yours that sold the most recently. As I said in a thread above, if he isn't local he might pick a house that appeared to match yours in a lower valued neighborhood. If it is within a mile or two there is a great chance that it would pass an underwriter. Now, if he picked 3 of those you might have undervalued your property.
> 
> ...


I can't remember all of the closing costs but i didn't pay points, deffinately an origination fee and escrow(would've been paid anyways) appraisal and titile fees, and interest between closing time - It was the best of the offers available from lending tree(along with local bank\brokers).  I was in 40% equity area at the time and ran the numbers as if I would have paid the 3900 as extra principle on the original note I think the refi still saved ~24k and 3 years - (numbers are a little fuzzy it's been a few years).
I will say the Lending tree process was fairly pain free - one direct line to one person handling your note and they come to your house for the dreaded paperwork process.

Heres what i can find on the new FHA rules
http://themortgagereports.com/12183...insurance-premiums-new-mip-cancelation-policy
*FHA MIP May Not Be Canceled After 5 Years, 78% LTV*

Returning to its pre-2001 policy, the FHA will no longer cancel FHA MIP once an insured mortgage reaches 78% loan-to-value (LTV). Instead, FHA mortgage insurance will last for the loan's full lifetime (which can be up to 30 years). The agency is making this change because roughly 12 percent of all FHA default claims occur on loans for which homeowners no longer pay MIP; and because home values are known to rise _and _fall. By collecting FHA MIP for the full 30 years of a loan, the agency can minimize future loss and more quickly recapitalize its reserve fund.


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## jharkin (Mar 30, 2013)

Swedishchef said:


> Lol...it's not a fremch thing, it is a Canadian thing, Eh?
> 
> When refinancing (mortgaging a larger amount due to consolidation of debt or other expenses) you simply pay the notary fees. If you break your mortgage before its up, that is when you get into IRD or 3 months interest, whatever is larger.
> 
> I am looking at renewing my mortgage...2.89 fixed for 5 years is what all the big 6 have offered me..sounds a lot less complicated than your ARM...lol


 
Sounds like what we call a prepayment penalty here. Some loans have them, some/most do not. I've never had one.


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## jharkin (Mar 30, 2013)

Back to bad appraisals... When we refi last year the appraiser chose one comp that had a 1/10 acre lot size... My lot is 1/2 acre. And he put zero $ for lot size value adjustment noting 'both lots offer similar utility'


Whaaaaaat???!

This comp is down the street. The 'lot' is basically a patch of dead grass their car is parked on.


But the appraisal came in $30k higher than I expected so I didn't fight it


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## EatenByLimestone (Mar 30, 2013)

Since land is worth something I believe it should be accounted for, but the bank I appraised for did not take it into account.  I know when I was house shopping I looked at a few houses without any land to speak of and passed them up.  Some were absolutely beautiful and probably well worth what they were asking for it.  You can't stack wood or have a kid play in something smaller than a flower garden.  

Matt


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## jharkin (Mar 30, 2013)

Oh absolutely I agree. The tax assessment values my land worth more than the building. But like I said otherwise the appraiser came in high, probably higher than I could actually sell for and high enough to lock in a no PMI loan so I didn't complain


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## gzecc (Mar 30, 2013)

BrotherBart said:


> When I was transferred the company bought my house. They got three separate appraisals and went with the middle one. I appealed it and told them the name of the appraisal company that submitted the low one and what they missed in comps. I was told that there was no way I could know which company a particular appraisal came from since the names weren't on the copies they gave me.
> 
> I told them to pull out all three and look at how the firewood on the deck was arraigned in the pics from each appraisal.


 Now thats funny!


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## Swedishchef (Mar 30, 2013)

jharkin said:


> Sounds like what we call a prepayment penalty here. Some loans have them, some/most do not. I've never had one.


 That is what I am talking about. Prepayment penalty. BUt we certainly don't have all those other fees when getting a mortgage other than notary/lawyer fees to make it official...

A


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## Cross Cut Saw (Mar 30, 2013)

In the state of Maine it's illegal to charge an early payment fee or penalty for any type of loan...


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## nate379 (Mar 30, 2013)

When I did my refi about a year ago I actually MADE money on doing it. 3.25% fro 5%.  After it was over I had made enough to cover a month of payments and $400ish into escrow which I got back after I had an overage when taxes got paid.


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## basod (Apr 5, 2013)

So I got the numbers from my current mortgage holder -2800 closing and 385 appraisal. 
 Didn't bother shopping any further as the 3k I'd save in interest is offset by just paying 3200 on my current principle

This rate modification deal apparently adversely affects your credit - this may be total BS coming straight from the lender.
You have to prove some hardship etc, and I'm sure the deal is sweetened on their end if your cashing out equity - they're making up closing costs on the interest over the loan life.
Not knocking anyone's decision life sometimes puts you in a situation of picking the lesser of two evils


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## woodgeek (Apr 5, 2013)

Not clear what you are talking about. You would only save $3k over the life of the loan?? The transaction cost (less escrow, etc) should be less than 1% of the home value. Even a quarter point reduction in interest would pay (pre tax) in 4 years or less. After tax, call it 5 or 6 years. Are they only offering you a 1/8% or something?

I did two refis, both knocking more than a point off, and netting me around 20% of the value of my house, after taxes, over the life of the loan. 

Was this app with your existing lender??  Sounds fishy to me.


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## basod (Apr 5, 2013)

WG I didn't ask for a breakdown of the costs.  It was with existing lender I may hit up LT for a comparison and play them against each other
I'm just running the numbers straight up. to move from 4.75 to 2.875%
Example current payment 900(no escrow)+ additional 1000 principle monthly + 3200 onetime principle(refi cost) = ~7k interest paid off in 4yrs(This will likely be sooner)
Refi option - 2800 closing + 385 appraisal (figure 3200)
New payment 770+ 1130 monthly principle(keeps apples to apples) without rolling the refi costs = 3700 interest, paid off within a month of the above scenario.(3700+2800+385=~7k as above)
So I'm paying for an appraisal that won't net me anything down the road... well a couple hundred bucks


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## woodgeek (Apr 5, 2013)

Ok.  A special situation.  If you are paying off in <4 years that is different.  Still, it is hard to understand how a reduction of 2% per year in interest (say 1.5% after taxes) doesn't pay off.  If transaction costs are <1%, how are you not net positive in 9 mos??  I

Sorry I am dense.  

Oh, if the closing is 1% of the house value, and you are 80% paid off, then the the savings is 2% of the remaining debt, which is much smaller than the 1%  of value??


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## basod (Apr 5, 2013)

I just ride under the assumption if your doing the refi and it has cost associated with it(including the appraisal)
Then why not just dump that on principle now and run the numbers side/side.
Thinking more deeply without seeing the refi costs broke down I may be shortchanging myself because my escrow is in the ~2k annually
I'd get any overage refunded after closing so if I assume it's 1% (I have about 80k outstanding) that's 800 so thus the 2800 plus 385 appraisal

Most people look at it like how can I save money by paying over the life of the loan - and if I were to do that I would ~20k
In my case I'd be paying less money monthly if only the 770+1000extra principle, where as it's affordable to pay 900+1000 currently so the extra 130 would have to be applied to the refi monthly payment to weigh the differences and the cost associated with the refi is near equal to the existing loan.

If you have excel there is a sweet mortgage calculator just search templates in the little paper clip helper buddy.


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## woodgeek (Apr 5, 2013)

I always used this site....

http://www.mortgagecalculator.org/

and run a bunch of scenarios. You have to compute your increased tax bill separately using your marginal income tax rate. In most cases a 1% reduction is easy money. And you are 2X that.

Sounds like you need a good estimate for the transaction costs, rather than closing costs. In my experience, the closing costs include 1 mo payment prepaid in addition to escrow.


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## Beetle-Kill (Apr 5, 2013)

As SIERRADMAX had suggested, I went to my mortgage holder today, let them know the rates I'd been quoted, and they beat them.  I am pleased.
3.424% APR is what I was after,  and no appraisal or out-of-pocket expense. This is on a 30yr. re-fi.  Now.....
I was told today, that on a monthly $1000 payment (reg. payment), if you sent in a $500 payment every two weeks, it would halve your interest, because the mortgage holders operate on a 30-day scale. The last $500 payment would be @ the 3.424%, but the first would not be. The advice was casual, so I don't know if this holds water or not. Thoughts?


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## basod (Apr 6, 2013)

Beetle-Kill said:


> As SIERRADMAX had suggested, I went to my mortgage holder today, let them know the rates I'd been quoted, and they beat them. I am pleased.
> 3.424% APR is what I was after, and no appraisal or out-of-pocket expense. This is on a 30yr. re-fi. Now.....
> I was told today, that on a monthly $1000 payment (reg. payment), if you sent in a $500 payment every two weeks, it would halve your interest, because the mortgage holders operate on a 30-day scale. The last $500 payment would be @ the 3.424%, but the first would not be. The advice was casual, so I don't know if this holds water or not. Thoughts?


 
That's what they call the bi-weekly plan, most lenders will charge you a fee for setting it up.
In reality you're making 13 payments a year (26 half payments).  Of course the timing of the payments have positive effect on interest owed as opposed to waiting to make the extra payment at the end of year one


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## Seasoned Oak (Apr 6, 2013)

ironpony said:


> agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
> Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.


THat is absolutely true. Banks have no interest in "owning property" their only interest is in profiting from the interest spread AND covering the value., WHat you can sell it for IS what its worth to the bank.Doesnt matter what its worth to you.


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## basod (Apr 6, 2013)

Heres the calculator I use






It's an older version the newer one available free here http://www.vertex42.com/Calculators/home-mortgage-calculator.html
doesn't have all the selectable macros there are separate calculators for the tax/ARM's etc


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## Seasoned Oak (Apr 6, 2013)

Basod 
I tried to download this and the one i get dont look nothing like your screenshot,keeps coming up a spreadsheet format.

I do have a great calculator but its from the 90s and in dos format. It does absolutely everything but i cant use it in win 7 and i cant find a newer one that compares.


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## basod (Apr 6, 2013)

Seasoned Oak said:


> Basod
> I tried to download this and the one i get dont look nothing like your screenshot,keeps coming up a spreadsheet format.
> 
> I do have a great calculator but its from the 90s and in dos format. It does absolutely everything but i cant use it in win 7 and i cant find a newer one that compares.


I don't know if the issue is the version of excel or not.   Enable macros? or visual basic issue?  The one shown above is no longer available but it's got almost all the features one could ask for
If you want I can probably email the spreadsheet as an attachment just PM me if interested


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## OldLumberKid (Apr 8, 2013)

SIERRADMAX said:


> Did you talk with your current mortgage holder? Most banks today want to keep your business. I spoke with mine, told them I was shopping around for the best rate to refinance and they immediately returned with a lower rate (competitive) and told me it would only be a one time rate modification fee. No adjustment to my amortization table. Saved me $150/mo. for a $700 fee. No closing costs, no appraisal fee.
> 
> If you do refinance. Be prepared for the possibility of banks to fund 80% of the appraised value. Also, those advertised low APR rates are sometimes to get you in the door. If they find one thing wrong or they don't like, the rate is subject to change.


 

I did that, as I had a bank I am happy with — maybe it costs a little upfront — bit more but no formal appraisal was necessary, and that fee was waived. As for comp prices in my hood, it was pretty hard to tell. Maybe it was a smidge under.


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## jharkin (Apr 9, 2013)

I use this set of online calculators a lot... there are all kinds of tax, investing, etc calculators there as well

http://www.dinkytown.net/mortgage.html
http://www.dinkytown.net/java/MortgageRefinance.html


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## briansol (May 3, 2013)

I'm closing on my re-fi on Monday.... it's with the same company that my current mortgage is in.

my house is underwater (130% ltv) so i'm not able to get the best deals around.  but i'm going from 7 1/8 to 4 .25% which equates to about 550 a month in savings!
and, i'm taking 3 years off the loan to boot. (was in a 40 yr fixed!)

my actual financed value is going up about 5 grand over what I currently owe, as they are skipping me 1 months payment (june, I just made mays, and I don't owe again until july 1) and there's about 2500 in fees/title search/etc etc.   Plus, I need to cover taxes up front (as they are due july 1) but I get the current escrow back in a check form 14-30 days after closing.
there was no appraisal fee, as my house is new enough to not have to have a human come out and look at it.  the system just auto approves it.
all they really asked me about was my income, my current cash balances (checking/savings) and that I have a perfect payment record with them.

regarding pmi, I get to keep my old rate, which is significantly lower than a new rate would be (about 100 a month cheaper) due to new laws.  the 80% rule will still apply in my case as well.

I recommend everyone call up and at least ask.


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## Highbeam (May 3, 2013)

briansol said:


> I'm closing on my re-fi on Monday.... it's with the same company that my current mortgage is in.
> 
> my house is underwater (130% ltv) so i'm not able to get the best deals around. but i'm going from 7 1/8 to 4 .25% which equates to about 550 a month in savings!
> and, i'm taking 3 years off the loan to boot. (was in a 40 yr fixed!)
> ...


 
Had you refinanced, or gotten the original loan, since May of 2009? That's my problem, not eligible for HARP if the loan was issued after 5/09.


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## briansol (May 3, 2013)

Highbeam said:


> Had you refinanced, or gotten the original loan, since May of 2009? That's my problem, not eligible for HARP if the loan was issued after 5/09.


no., my loan is from 2007.


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## woodgeek (May 3, 2013)

Is this a HARP program loan?


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## Highbeam (May 3, 2013)

I bet it is. Thing is, they don't tell you. Certainly not clearly. That rate of 4.25 is quite high for your one chance at a HARP.


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## woodgeek (May 3, 2013)

Still, not a bad savings from 7% on an underwater home.


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## briansol (May 6, 2013)

it is harp.  its 4.125.  its like 140% loan to value.  it's the best i'm ever going to do.
I would have been happy with 6 to be honest.  4.125 is way better than I was expecting.


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## TheMightyMoe (May 8, 2013)

Just got my appraisal done, lady measured all the rooms, outside, asked if anything was new, 10 minutes maybe?

Going from 5 to 2.75% and from 30 year to 15 year. Currently I pay around 200 principal and 400 interest a month, and soon to be 550ish principal and 200 interests. Bought the place as a fixer-upper, so I did a 30, now it's fixed up, so I will do the 15 to finish her off / avoid PMI based on new value. Didn't have PMI before due to VA Vendee loan.


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## Cross Cut Saw (May 15, 2013)

I forgot to send an update, oops...

The appraisal SUCKED, compared my house to the first crap he could find.  One had railroad tracks in the backyard (literally 20 feet from the house, we have acres of woods) and another had 2 bedrooms, mine has 5!

Not much I could do about that, anyway I just ended up taking out about 12k less since my loan to value would only allow what I got out.

I still ended up getting enough cash out to pay off most of the credit cards (my wood stove and installation!) and now I'm paying $200/month less than before with a 5/1 30 ARM that is set at 2.625% the first 5 years and then has a max of 7.625%.

I feel pretty good about the whole thing, still cost me under $200 to close so it was worth it.


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## briansol (May 16, 2013)

start shopping for your next fixed loan in 2 years before rates go up again.  re fi into a 15 fixed.


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## gzecc (May 16, 2013)

briansol said:


> start shopping for your next fixed loan in 2 years before rates go up again. re fi into a 15 fixed.


 At these rates get the 30 yr and pay it off in 15.


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## briansol (May 16, 2013)

why would you do that?  15 yr rates are cheaper.


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## woodgeek (May 16, 2013)

Or go into a 30, which is less than the inflation rate (after taxes) and invest the difference in a low load index fund!  Cha-ching.


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## Highbeam (May 17, 2013)

The beauty of the 30 is that if something bad happens, again, that you have a low minimum payment to fall back on. The tough part is the discipline to make extra payments if you really want to be done in 15.


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## TheMightyMoe (May 17, 2013)

Even with a 30, won't the way the amortization rate setup still hinder your equity vs a 15?

The lower 30 year payment is nice however if you need it.


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## woodgeek (May 18, 2013)

One philosophy was that if you invested the cost difference b/w the 15 and the 30 in a low cost index fund, the compounded returns in the fund would be a lot higher than the reduced home equity, and more liquid in case of 'emergency'.

Presupposing you wouldn't spend the difference!

IOW, a 3.5% mortgage with tax benefit is ~2.8%/yr....do you think an index fund can beat 2.8% after expenses, i.e. 3.3%/yr assuming capital gains tax, over 30 years??

Stated still another way....if the tax discounted mortgage balance cost is close to (current) inflation, then your index fund just needs a barely positive real return (relative to inflation) to come out ahead.


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## gzecc (May 19, 2013)

In 15 yrs we probably won't be able to borrow money at these low rates. Buy low, even when it comes to money.


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## woodgeek (May 19, 2013)

Looking at a 15 or 30 year refi now...I am currently at 3.375% 2 years in on a 15. This has been great for building much needed equity, but the big monthly nut has been a strain. All of my major assets are currently illiquid...house and 403(b) accounts. When my two kids get to college age starting in six years, the only way I could raise big money would be to refi then into a longer term mortgage (freeing up cash flow), and/or take out a HELOC (to use my then massive equity).

If I refinance into a 15, i could shave ~$200/mo off of that nut (after taxes), between the lower rate and a 2 year term extension. But saving $200/mo will not yield much of a college fund 6 yrs from now. And there is still the risk that refi and HELOC rates 6 yrs from now could be a lot higher.

Alternatively, I can go into a 30, and (after taxes) save ~1000/mo. In six years of savings, that could be $70-100k (invested in an index fund) up front AND $12k/yr to pay for college. And have no risk from rising rates. (but does have a risk with losing money if index funds crash hard b/w now and then, which I am frankly not worried about). And of course, I would have a lot less house equity.

Seems like a no brainer to go for the 30. Comments welcome.


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## TheMightyMoe (May 19, 2013)

I have no faith in myself investing, nor do I have the strain of children. I pretty much try to learn off the wisdom of others, hence the 15 year, in hopes I'm not like all the older people I know that are still paying off home nearing retirement. I do have a 401k push come to shove.

Also I just got approved at 2.75% APR for 15, my 30 would have been around 3.6%. Like I said, I wouldn't expect myself to get ahead on the 30.


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## woodgeek (May 19, 2013)

I hear ya....don't think I can beat the market, but I think with an index fund I can track the market and beat inflation (over the long term).

My (combined family) 403b just passed my mortgage balance....if I retire in 15-25 years, i think my retirement account will be well ahead of any remaining mortgage balance.

Its all about liquidity....it looks like I will have a great retirement fund in 15 years, but be seriously short of cash to pay for two college eds before then. So, a 30 yr will allow be to 'borrow from the future' an amount roughly equal to what I see needing for my kids' college, and then I can pay off the mortgage balance when I retire (if it seems the right thing to do then).


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## Highbeam (May 20, 2013)

Great discussion. I would love to be making the same decision but already burned my HARP ticket without knowing it.


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## Mitch Newton (Jun 3, 2013)

ironpony said:


> agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
> Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.


 
*Cost is not value.* I think you need to make sure you get a qualified appraiser. By that I don't mean an appraiser that just hits the number. Dis-honest appraisers,  predatory loan officers and lenders are what caused the meltdown. I know many appraisers and lenders that are now in jail. As an honest appraiser with 32 years experience I'm still in business. My advice is to go to a lender that uses an appraiser with a professional designation such as the MAI or SRA. The designated appraiser is required to have more education, experience, ethical training, and peer review that most basic appraisers.  Kinda of like a bookkeeper or a CPA. Who do you trust the most? You get what you pay for. Stay away from the large lenders as they chose their appraisers based on the lowest fee. They will fill out the closing statement with a $500 fee for the appraisal. But the borrower doesn't realize that the appraiser just got $200 while the lender kept the other $300. Totally mis-leading.

My advice is to go to a credit union. They generally are all about the "Member" and will provide the best service.


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## basod (Jun 8, 2013)

My current mortgage holder hit me up again last week. The same 2.875 on a 10yr fixed from my current 4.75 on a 20yr - that in reality I'm in year 13 after 4yrs of extra payments.

I had them befuddled after telling them it was actually going to actually cost me an additional 2600 over the life of the loan to refi even though it was saving me ~3500 in interest.

And FYI they approved me for a no appraisal "rapid equity" loan LTV ~40%.
The phone call informing them I wasn't going to refi escalated through 3 levels of management each of them increasingly more frustrated that I wouldn't pay them an extra 2600 over the next 4yrs to lower my rate  It was almost as entertaining as bopping the car dealer over the head a few months ago


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## woodgeek (Jun 11, 2013)

An update....going forward on the 30 yr fixed refi, got a lock today @3.875. In terms of cash flow, it looks like it starts out net positive $1050/mo relative to the current loan with 13 years remaining. The monthly savings increase to ~$1300/mo 13 years from now (due to tax differences). Of course, with the new loan, I will still owe $230k on the house 13 yrs from now, versus being paid off with the current loan. (This means that I am cash flow negative for 17 years after that with the new loan).

So, the math problem is to ask what compounded rate of inflation do I have to earn on my savings over the next 13 years such that I am sitting on $230k cash (after capital gains). IOW, such that I could pay off the loan and be just 'even' in 13 years. I find that I need to make 5.5% before inflation. If you believe in safe 'perpetual annuity rates at 4% per year', this means real average returns of 4% after inflation, or more like 6-7%. Since 6-7%>5.5%, sounds like I have a high statistical probability of coming out ahead (i.e. it is a safer investment than a 4% annuity).

Of course, Since the proceeds will go toward college for two kids currently 9 and 12, under the current loan situation, rather than finding myself with no mortgage balance in 13 years, I might find myself looking at a >$200k Home Equity Loan I had to take to pay for college. So, if the proceeds of the new loan can pay ~$230k for college, then I remove my current risk that Home Equity loans have very high interest rates or are unavailable in 6-12 years. In the opposite case (rates fall further), then I can refi again to improve ROI. If inflation picks up (along with interest rates, home prices, nominal market yields but, say, not my salary) then I come out way ahead with the new loan, no surprise for a leveraged investment strategy.

Flame on.


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## briansol (Jun 11, 2013)

You can't take it with you.

Helping your kids through school is an honorable thing to do. My old man did it for me, and I hope to be able to do it for mine someday (currently no kids). Just because you have a lower payment doesn't mean you have to pay a lower payment. Pay what you can on it if you have no other debt and some real-time cash available. Then, during the hard years of college bills, pay the minimum.

Also, if you're only making 4% in the market, you need to take a stock class.

I'm averaging about 60% returns gross this year alone.  Freak year, admittedly.  I got out last week and expect a massive pull back this summer.
After that, get yourself in some nice high-div stocks.  15-20% is not uncommon in the mREIT and BDC sectors.  Happy to discuss some picks offline.


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## woodgeek (Jun 11, 2013)

briansol said:


> You can't take it with you.
> 
> Helping your kids through school is an honorable thing to do. My old man did it for me, and I hope to be able to do it for mine someday (currently no kids). Just because you have a lower payment doesn't mean you have to pay a lower payment. Pay what you can on it if you have no other debt and some real-time cash available. Then, during the hard years of college bills, pay the minimum.
> 
> ...


 
I think we are on the same page.  The long term averages on low cost index funds are 6-9% including dividends and inflation, somewhat less than that after inflation.  4% is a pretty commonly used floor for real yield after inflation, likely to be exceeded, seldom not over a long span.  I am just using it to say that my before inflation yield should be >5.5%.

But we disagree....if my mortgage is costing me 0.7*3.875 = 2.7% after taxes, and you are bullish on stocks, why would you send extra money to the mortgage...and not invest it.  That is the whole point of my refi.  Do you agree?  If I became a perma-bear, I could still switch to prepaying the 'gage.


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## Highbeam (Jun 11, 2013)

woodgeek said:


> But we disagree....if my mortgage is costing me 0.7*3.875 = 2.7% after taxes, and you are bullish on stocks, why would you send extra money to the mortgage...and not invest it. That is the whole point of my refi. Do you agree? If I became a perma-bear, I could still switch to prepaying the 'gage.


 
I admit to being a novice to some of this stuff but I agree that a mortgage is extremely cheap money. Taking advantage of the (current) tax benefits and low rates for a single family mortage means the only worse thing you could do with your money than paying down the mortgage is to keep it in a coffee can. 

I appreciate the effort to be mortgage debt free. It would be great, but it isn't the best use of your money. I also am a vicitim of low liquidity. I have some assets that are not very liquid and it stinks.


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## briansol (Jun 12, 2013)

woodgeek said:


> But we disagree....if my mortgage is costing me 0.7*3.875 = 2.7% after taxes, and you are bullish on stocks, why would you send extra money to the mortgage...and not invest it. That is the whole point of my refi. Do you agree?


 
I think that would vary based on your age.

younger, you may see better benefits of putting it in the market.
older, I think you'll see better benefit of paying off the loan faster.


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