Requesting a pay-off quote from mortgage company?

[jeromedawg]

Hi all,

I'd like to hear from those of you who have requested pay-off quotes on loans/mortgages. We recently requested a pay-off quote on behalf of my in-laws but the representative told us in order to proceed with the request they need to order an appraisal of the house (for which my parents would be responsible for paying). The reason for this is because the loan they have is a SAM (Shared Appreciation Mortgage) and so it's "necessary" to get the appraisal done - I'm still not sure what the logic is behind this.

We're just trying to figure out what the closing costs and final proceeds would be from the sale of their place. They bought it in 2004 for $525k - not sure what the details of the loan were at that time but they got the loan through a cruddy servicer (formerly Litton Loans and now known as PHH). In 2011 they did a loan modification into the SAM (25% of the appreciation at time of sale of property or when the loan has fully matured, which should be end of 2034) at a 2% interest rate so they could afford the payments on the house (but now with the backend cost of that 25% shared appreciation number).

I don't know if PHH will also charge an early pay-off penalty/fee but I think we asked about this and they also wouldn't disclose as all that is subject to first ordering the appraisal before any quote or details around the pay-off could be provided.

[ixtap]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

[RWD]

The pay-off quote will be the current balance + expected accrued interest at payoff date + 25% of the appreciation since the mortgage was originated. That last variable is unknown without an appraisal (or perhaps actual contract with a buyer).

If you're just trying to come up with an estimate for planning purposes just take a guess as to what the home will sell/appraise for.

[jeromedawg]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

[RWD]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

It's usually a daily interest calculation between the last payment and the payoff date. For example, if the last payment was on 2021-04-01 and you get a payoff amount good through 2021-04-27 you would add 26 (or 27?) days worth of interest. ( $198000 * 0.02 / 365 ) * 26 = $282 of interest.

[jeromedawg]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

It's usually a daily interest calculation between the last payment and the payoff date. For example, if the last payment was on 2021-04-01 and you get a payoff amount good through 2021-04-27 you would add 26 (or 27?) days worth of interest. ( $198000 * 0.02 / 365 ) * 26 = $282 of interest.

Their pay-off date is 12/1/2034 then that would be 4973 days which means ($198000 x 0.02 / 365) x 4973? That's over $50k... is that right?

[marty998]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

It's usually a daily interest calculation between the last payment and the payoff date. For example, if the last payment was on 2021-04-01 and you get a payoff amount good through 2021-04-27 you would add 26 (or 27?) days worth of interest. ( $198000 * 0.02 / 365 ) * 26 = $282 of interest.

Their pay-off date is 12/1/2034 then that would be 4973 days which means ($198000 x 0.02 / 365) x 4973? That's over $50k... is that right?

I agree with RWD here

[RWD]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

It's usually a daily interest calculation between the last payment and the payoff date. For example, if the last payment was on 2021-04-01 and you get a payoff amount good through 2021-04-27 you would add 26 (or 27?) days worth of interest. ( $198000 * 0.02 / 365 ) * 26 = $282 of interest.

Their pay-off date is 12/1/2034 then that would be 4973 days which means ($198000 x 0.02 / 365) x 4973? That's over $50k... is that right?

If you're getting a payoff quote then presumably the plan is to payoff the mortgage early. The payoff date in this case is the deadline given for when the quote will be valid (usually within a couple weeks or so of the payoff quote request).

[srad]

What you need to look at is the mod document, what value are they using for the baseline.  When they got this mod a lot of homes were underwater, so did the mortgage company place a new value on their house at say 400k? so any amount over 400k they get 25%, or did they keep  the original value of the house at the time of the 2004 mortgage which would be say 525k.   That is going to make a HUGE difference in the amount of the money they get to take home.

if the mod was from 2011, you most likely won't have a prepayment penalty.  They are usually anywhere from 1 to 5 years, but to be sure, that will be in the mod doc as well.

And at this point, you don't need an appraisal to know what their house is worth, just figure out on your own, what did the surrounding homes on Zillow sell for in the last 6 months.  If you are really struggling on this, just get two or three local relators to swing by they will give you a very close number for what its worth.  I am curious to know if the servicing company uses the appraisal or is there some language that states they will use what the house actually sells for.

Payoff day is the day they pay it off, like in 3 weeks.  You don't need this much detail in estimating your payoff amount.  If the loan is current, just take their remaining principal balance and add 75% of one payment to it, that's a pretty good ballpark. 

[jeromedawg]

What you need to look at is the mod document, what value are they using for the baseline.  When they got this mod a lot of homes were underwater, so did the mortgage company place a new value on their house at say 400k? so any amount over 400k they get 25%, or did they keep  the original value of the house at the time of the 2004 mortgage which would be say 525k.   That is going to make a HUGE difference in the amount of the money they get to take home.

if the mod was from 2011, you most likely won't have a prepayment penalty.  They are usually anywhere from 1 to 5 years, but to be sure, that will be in the mod doc as well.

And at this point, you don't need an appraisal to know what their house is worth, just figure out on your own, what did the surrounding homes on Zillow sell for in the last 6 months.  If you are really struggling on this, just get two or three local relators to swing by they will give you a very close number for what its worth.  I am curious to know if the servicing company uses the appraisal or is there some language that states they will use what the house actually sells for.

Payoff day is the day they pay it off, like in 3 weeks.  You don't need this much detail in estimating your payoff amount.  If the loan is current, just take their remaining principal balance and add 75% of one payment to it, that's a pretty good ballpark.

Ah good point. So the amount they are basing it on is $306,850 which is the amount of the interest bearing principal at the date of loan modification. So 25% of the appreciation from $306,850 to whatever it would sells for (assuming it's arms length... if not arms length then it would be 25% of the appreciation from $306,850 to whatever the appraisal comes back as). There's a clause in there too about "subsequent capital improvements" qualifying as credits towards the shared appreciation too (I guess if you remodel, etc you can deduct it from the shared appreciation amount?). The SAM amount is capped out at $153k~ (which is the deferred principal balance) so they can't take more than that in the case that the place sells for upwards of $920k for example... I don't see anything in the loan modification doc indicating a prepayment penalty.

In terms of whether the servicing company uses the appraisal vs what the house sells for, I think if you request the payoff quote they have to get an appraisal. If you just list the house and sell it (to a non-relative/non-friend) then they go based on the actual sale price. But if they were to sell it to us, for instance, then it would be appraised. I wonder how many homes right now are being appraised for less than what people are currently paying - I'd have to imagine quite a few, IF they are even getting appraised (because most people are just waiving the appraisal contingency)

[srad]

If you are talking about the home being worth 900k then there you go, add 153k to the payoff amount.  Arms length or to you, 25% equity will be more than 153k.

If the servicer orders an appraisal, I'm pretty sure you will be paying for it.  So don't go get this process rolling until its time to sell.  And correct, right now its anybody's guess what a house will end up selling for.  Bidding wars have gotten out of control, i'd bet on an appraisal being lower than the offer everytime...

[jeromedawg]

With shared appreciation, how could they give any details if they don't have an appraisal first. The answers will be dependent on that appraisal.

As for any early pay fees, that should be in the original documents.

Oh true... aside from the shared appreciation factor, which I think I dichotomized and failed to factor in, is there a formula for figuring out what the pay-off would be on the loan balance alone? Say their loan amount is $198,000 - would I just multiply that by .02 (2%) to get the interest amount?

It's usually a daily interest calculation between the last payment and the payoff date. For example, if the last payment was on 2021-04-01 and you get a payoff amount good through 2021-04-27 you would add 26 (or 27?) days worth of interest. ( $198000 * 0.02 / 365 ) * 26 = $282 of interest.

Their pay-off date is 12/1/2034 then that would be 4973 days which means ($198000 x 0.02 / 365) x 4973? That's over $50k... is that right?

If you're getting a payoff quote then presumably the plan is to payoff the mortgage early. The payoff date in this case is the deadline given for when the quote will be valid (usually within a couple weeks or so of the payoff quote request).

Ah ok, so it should typically be a fairly low amount. Sounds like it's better just to wait for them to sell anyway. I was kind of just curious if it might be worth it for us to pay-off the loan for them and get shared interest in the home. But I think that would complicate things since the home is in their will and my brother-in-law is also on the will where he and my wife split their inheritance 50/50.

If you are talking about the home being worth 900k then there you go, add 153k to the payoff amount.  Arms length or to you, 25% equity will be more than 153k.

If the servicer orders an appraisal, I'm pretty sure you will be paying for it.  So don't go get this process rolling until its time to sell.  And correct, right now its anybody's guess what a house will end up selling for.  Bidding wars have gotten out of control, i'd bet on an appraisal being lower than the offer everytime...

Realistically, I think the home will go for around $750k'ish based on comps in the area - it's pretty dated with a mish-mash of some improvements (like bathroom extension/remodel), but I don't know if the person they used obtained all proper permits and such (but none of that might matter the way things are in this market, if they were to sell now). If they list to sell, it seems like the servicer may not be ordering an appraisal at all unless it's not arm's length? I'd doubt we'd want to buy it from them either way...

[jeromedawg]

Do you guys think it makes sense to try to pay-off the loan and shared appreciation early vs just waiting it out and pushing it until early 2034 and trying to sell then? My in-laws are both 76 now, so this assumes they'd still be there when they're 89... not sure how realistic that is. OR, in the case of a death or where one or both have to move out for medical reasons, just sell at that point in time? I'm not sure if holding and renting it would make a lot of sense...

[srad]

The only reason i'd pay this off is if the interest rate is over 5%.   You are in it for a max of 153k shared appreciation, which isn't really appreciation anyway.  The deferred amount is an amount they actually owe.  At the time of the mod, that balance was calculated based on their missed payment plus interest plus taxes plus any expensed the mortgage company incurred during their delinquency.  you aren't paying interest on that amount so there's no rush in my mind for paying it off.

Actually, now that i said you aren't paying interest on the 153k, do the math.   their current payment is based on 300k balance, vs new loan at 453k.  Does it make sense now to refi.

[jeromedawg]

The only reason i'd pay this off is if the interest rate is over 5%.   You are in it for a max of 153k shared appreciation, which isn't really appreciation anyway.  The deferred amount is an amount they actually owe.  At the time of the mod, that balance was calculated based on their missed payment plus interest plus taxes plus any expensed the mortgage company incurred during their delinquency.  you aren't paying interest on that amount so there's no rush in my mind for paying it off.

Actually, now that i said you aren't paying interest on the 153k, do the math.   their current payment is based on 300k balance, vs new loan at 453k.  Does it make sense now to refi.

Ah ok. I think what they probably can't do is try to hold the house until the maturity date because they'll owe likely $153k out of pocket at that time and their cash reserves are pretty low. They never invested any of their money and it's kind of late to do anything like that now - they have a little over $321k and are getting SS payments. They are renting out the two other rooms to ppl in the meantime.
What would the advantage of doing a refi be right now? There's a clause in the loan mod doc where if you refi you'll have to pay shared appreciation on the valuation (presumably per appraisal) above that $306,850 amount so definitely will have to foot the bill somewhere.

[srad]

Correct, a refi pays the loan off and that 153k is part of the loan.  Are they even able to get a new loan?  The only reason you'd want to refi this now is because maybe they can get a loan.  In 2034 they might not be able to and you will be forced to sell the place to pay off that 153k. 

As i said before their new loan balance would become 453k (ish)  currently they are paying interest on 300k.  their current loans seems like a good deal right now (granted i don't know what the rate and payment is so i have nothing to compare it too)  .

[jeromedawg]

Correct, a refi pays the loan off and that 153k is part of the loan.  Are they even able to get a new loan?  The only reason you'd want to refi this now is because maybe they can get a loan.  In 2034 they might not be able to and you will be forced to sell the place to pay off that 153k. 

As i said before their new loan balance would become 453k (ish)  currently they are paying interest on 300k.  their current loans seems like a good deal right now (granted i don't know what the rate and payment is so i have nothing to compare it too)  .

Well, they stopped working/sold their restaurant back in 2019 so they have no source of income other than social security. Not sure they'd be able to refinance given the current situation. I'm wondering if it would make sense for us to step in and help with that? Not sure if that would complicate things with the title and also the will (in terms of how her parents have the inheritance set to split 50/50 with my BIL and wife). I think by 2034 they may not be in the house, realistically - they'll be 89 by then and I think we have to talk to them about possibly selling earlier. If they sold today they'd net loss based on what they paid in 2004. But if they owned until 2034 and sold then they'd net profit. The maturity date is the end of 2034, so they could conceivably hold and sell 1st or 2nd quarter of 2034 and be OK.

[srad]

It makes no sense for you to do this.  Its their house, and you are way too early to be expecting anything for inheritance.  Ride this out until 2034. 

Lets assume in 2034 they have their health and have no plans about moving out of the house.  Then you can talk about who steps in.  The loan you will be looking to take out will be 153k.  VS if you were to step in today the loan amount would be 453k. 

[jeromedawg]

It makes no sense for you to do this.  Its their house, and you are way too early to be expecting anything for inheritance.  Ride this out until 2034. 

Lets assume in 2034 they have their health and have no plans about moving out of the house.  Then you can talk about who steps in.  The loan you will be looking to take out will be 153k.  VS if you were to step in today the loan amount would be 453k.

Ah ok thanks for clarifying.

We'll try to wait it out till 2034 then. In the case that they have to move out due to health issues, death of a spouse, etc, would it make sense to sell at that point in time? Or should we try to hold the property and rent it out until 2034?

[srad]

You sell it.  That 153k balance has nothing to do with what you do with the house. 

Here's what going to happen if they pass away or they decide to sell before 2034:
If there is no equity in the house that 153k is eaten by whomever owns the loan. 
If the equity is only 100k then the loan owners get 25k of it and you get 75k
If there is tons of equity then the owner will get his full 153k and you get even more

and when i say 153k i mean that on top of whatever the interest bearing account is at the time of sale.

[jeromedawg]

You sell it.  That 153k balance has nothing to do with what you do with the house. 

Here's what going to happen if they pass away or they decide to sell before 2034:
If there is no equity in the house that 153k is eaten by whomever owns the loan. 
If the equity is only 100k then the loan owners get 25k of it and you get 75k
If there is tons of equity then the owner will get his full 153k and you get even more

and when i say 153k i mean that on top of whatever the interest bearing account is at the time of sale.

I was running some calculations and if they were to sell *today* they'd net negative based on what they paid into the home back in 2004. But I projected that if they can stay there through 2027, they'll net positive by $40k~ after closing costs and shared appreciation pay-off. If they sold in 2031, they'd net $145k. If they were to stay through 2034 and sell in the first or second quarter then, they would net $239k

The bigger issue outside of a death, hospice or having to move out due to health/medical reason, is how much longer they can viably have roommates - it's hard to imagine them still having roommates going into their mid to late 80s. We have talked about them downsizing and moving closer to us or possibly into an ADU type situation if we were to secure a home that had something like that.

[Mustache ride]

How do you have any idea what the house is going to be worth in 2027, let alone 2031?

[jeromedawg]

How do you have any idea what the house is going to be worth in 2027, let alone 2031?

Just a very simple tool I stumbled across here - https://www.imfingo.com/calculators/future-home-value-calculator

It's basically just following a 2% YOY average appreciation... but yea who knows - there could be a crash or the market could get even crazier than it is right now, right? We'll never know... I was just forecasting a very flat-level hypothetical.