Understanding Refinance charges

[joenorm]

Hello,

I am applying for a $160K Refinance on my primary residence which I currently owe nothing on. Value is around $650K

I got the preliminary estimate back and I am surprised to see the closing costs at $4,544

this includes:   Lender compensation credit @ 1% (don't understand this)
                        Origination fee @1%
                        Broker Compensation fee @ $1600
                         Appraisal: $775
                        Document prep: $750
                       And a bunch of other medium and small settlement charges to total $4,544

Then there is "prepaid escrow charges" @$3,331which is some tax payments and HO insurance over 6 months.

Total estimated settlement costs:$7875

Maybe this is all totally normal? Appreciate the feedback.

[secondcor521]

The prepaid escrow stuff I wouldn't worry about - you're going to owe taxes and insurance no matter what, so that should all settle out in the end.

The compensation credit and the origination fees are essentially prepaid interest.  Unless your rate is significantly below market, I would think you could do better.

Broker's fee - do you think this is for your mortgage broker?  Is it worth it to pay him/her that?

Appraisal sounds really high - I paid $290 for my last one, but that was in 2008.  If you ask them about it, they'll probably tell you they estimated high so that you won't be unpleasantly surprised.

Doc prep - this is a junk fee IMHO.  There is a line with this description on my HUD-1 but it's under "Title charges", and I didn't pay one for my refi in 2008 (with PenFed).

The closing cost number of $4,544 is 2.8% of your loan amount.  That seems high.  My all-in costs on my refi for a similar amount in 2008 was $2,457.

My gut feel is that whomever is giving you this estimate figures you can afford it if you have a $650K house.

[joenorm]

Thanks, I am still trying to figure out how this works. I live in a small town, so options are not abundant. These are numbers from 1 of 3 local options.

What does shopping around for a loan look like? Do I just go through this process with all the folks in town and see who comes out best? Does that hurt my credit score? If so, does that matter?

Is it worth splitting hairs if one loan is just slightly better than the other vs. just getting on with it and locking in a good rate before they rise?

[SwordGuy]

Many brokers will pad the transaction with bogus fees that are nothing but a cash grab from clueless folks.

If they can't explain exactly what that fee is for and why advantage that fee provides you, it's probably a bogus charge.

Some of them will slip in pre-paid interest (points), or change the interest rate, etc.

Read the entire document before you sign it.   Make sure it says what they told you it would say.  It doesn't always.

Be prepared to delay closing to make them fix it.


And yes, it seems very high.

[Dicey]

We are looking at re-fis on three rentals. The fees we're being quoted are exorbitant. We're just going to pass for now.

The loan you're seeking is a cash-out re-fi. That's another way the lenders get you. Initial acquisition loans are cheaper, which makes no sense.

What are your plans for the money? Why do you need this loan now?

[joenorm]

Well I technically only need $130K to pay back personal loans for a raw land deal I made earlier this year. But I figured I would take out a bit more for other property improvement.

So when would ever be a better time? Interest rates are only going to rise, right? I'm guessing as interest rates rise, fees typically go down? Or does it not work that way?

My guess is that I could "shop around" but probably won't do too much better if I want to stay with a "local" lender.

[Dicey]

It should be easier for a primary home. Paging @couponvan. Also that new .5% fee is bullshit. I've read that it's somewhat discretionary, so a lender who doesn't resell might be more willing to waive it and other fees. I also expect Biden will repeal it.

Rates bounce around a little bit, but they're still at historical lows. They may increase a little bit, but it's unlikely they'll skyrocket. What is that other debt costing you? Did you pay cash and you want it back or can you get a better interest rate on the primary vs. raw land?

BTW, no, interest rates don't always rise. In the Oughts, I had an 5 year ARM which was tied to a good index with a great rate. At 4.5 years, I got nervous and fixed rates were dropping, so I did a fixed-rate refi for the security of it. That was a mistake, in retrospect. The index dropped so much over the next decade that I would have been far better off letting it ride. My point is that conventional wisdom isn't always right.

[PMJL34]

https://frugalprofessor.com/mortgage-refinancing-calculator-lenderfi-review/

This is an easy place to start.

The numbers you posted are ridiculous. Don't do it. Follow the site I posted and if you want a deep dive into it, read the boglehead 1000+ pages discussion.

Good luck!

[secondcor521]

Thanks, I am still trying to figure out how this works. I live in a small town, so options are not abundant. These are numbers from 1 of 3 local options.

What does shopping around for a loan look like? Do I just go through this process with all the folks in town and see who comes out best? Does that hurt my credit score? If so, does that matter?

Is it worth splitting hairs if one loan is just slightly better than the other vs. just getting on with it and locking in a good rate before they rise?

The way I shopped around was to go to the various lender websites and look at two figures:  rate and points.  You could also just look at APY if you wanted a single number to look at.  It takes one minute to look at a loan this way - no need to "go through a process".  Looking at websites does not hurt your credit score.

I always shopped my mortgages pretty hard.  A 0.25% interest rate difference over the life of the loan can equate to thousands of dollars.  Thousands of dollars in my world at that time was a lot of money and worth the effort.  How hard did you shop for your last TV and how much did you save doing that?  Probably days and maybe a few hundred dollars.

So when would ever be a better time? Interest rates are only going to rise, right? I'm guessing as interest rates rise, fees typically go down? Or does it not work that way?

My guess is that I could "shop around" but probably won't do too much better if I want to stay with a "local" lender.

Now is historically a really good time; rates are quite low.  Nobody knows what rates will do.

The mortgage industry is a competitive landscape.  There are plenty of people who don't shop around, and so get charged fees.  I think there will always be companies that charge those high fees and get away with it.  They stay around because they make a lot of money on the fees people pay them.

Not sure why it matters to have a local lender.  I always shopped nationally.  I was able to interact with my lender through email, phone, and mail.  Works just fine if the lender has their act together, so I always chose a company that had a good reputation.  When I signed papers on my last refi, it was with a company in Virginia.  They just hired a local person to come to my house, and I signed the papers on my kitchen table.

[sailinlight]

I think the lender compensation credit is not a fee, but basically refunding the $1,600 broker fee.. Check the dollar amount, I suspect it would be negative, otherwise the numbers don't really add up to $4,544 ($1,600 x 3 + 775 + 750 already are $6,300)

[joenorm]

I think the lender compensation credit is not a fee, but basically refunding the $1,600 broker fee.. Check the dollar amount, I suspect it would be negative, otherwise the numbers don't really add up to $4,544 ($1,600 x 3 + 775 + 750 already are $6,300)

one of those is a credit

[joenorm]

Update: I have received two cold calls from Amerisave, presumably a nationwide mortgage broker.

They are offering negative points for the same loan. Has anyone ever dealt with this company?

[secondcor521]

Update: I have received two cold calls from Amerisave, presumably a nationwide mortgage broker.

They are offering negative points for the same loan. Has anyone ever dealt with this company?

Nope, but 1 minute of Googling turned this up:

https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-amerisave-to-pay-19-3-million-for-bait-and-switch-mortgage-scheme/

From 2014, but still.

This wasn't a glowing review either:

https://www.thetruthaboutmortgage.com/amerisave-mortgage-review/

[joenorm]

https://frugalprofessor.com/mortgage-refinancing-calculator-lenderfi-review/

This is an easy place to start.

The numbers you posted are ridiculous. Don't do it. Follow the site I posted and if you want a deep dive into it, read the boglehead 1000+ pages discussion.

Good luck!

Thanks! I just got a quote from Better, although the rates are terrible compared to what FrugalProfessor posted

[PMJL34]

Great! Yeah, FP posted that in September (?) so rates have certainly changed since. I just wanted to show you the fees he paid (very very low) compared to what you were quoted and how he was able to negotiate and lower the fees even lower. Keep shopping around and I'm sure you will find something that suits you!

[ebella]

We refinanced in May (but still owed $200,000k) because we got an offer from our existing lender in December to refi with no lender fees.  But now there is so much refi demand that I doubt you'll get a waiver of all fees.  Our total (minus escrow stuff) was $2765 but it will pay for itself in less than a year because our interest was slashed alot.  Our appraisal fee was $520 and we only live in a loft so I don't think your fee is crazy there. Maybe see if you can negotiate for lower lender origination fees etc by shopping around.  If your bank also does refis maybe ask them what they would do to have you refi with them rather than elsewhere?  Are you just doing this to get some liquidity?  Is there a reason why you're not looking at other loan options?  Interest rate is so low right now that the refi costs may not be worth it if your house is already paid off and you can get liquidity at a low interest rate elsewhere.

[joenorm]

I am paying back another property that is currently owner financed. I just figured going with a 30 year fixed would be the best option. What other ways do you suggest getting liquidity?

What I am finding is the the rates are not as good for a "small" amount like $150K. In my case it is becoming obvious that no fees is not really an option.

thanks!

[secondcor521]

Have you looked into a HELOC?  I've usually only thought of them for smaller amounts (like $50K), but a quick google suggests that $150K could be done.  At first blush, a HELOC should have much much lower fees, possibly a higher and possibly not fixed rate, and perhaps not as long of a payback period.  But worth considering.

[joenorm]

I considered a Heloc, I just figured since they are not fixed it's too risky for something I may hold for awhile.

[Dicey]

I considered a Heloc, I just figured since they are not fixed it's too risky for something I may hold for awhile.

Yup, that's the right conclusion.