Real Estate Home Mortgages/HARP refi
Hi Mr. Schow,
I have a question about a HARP refi. I now have a 30 year fixed mortgage at 6.5 percent. I owe 140000 on a property that is now worth about 90000. I pay 170 per month for PMI. I have good to excellent credit. I have been told by two lenders that I qualify for a HARP refi; however the cost are in the 8000 range to bring my rate down into the 3.5 range. I’m being told my PMI payments are too high (see the lender explanation below).
“In order to be in compliance, your rate and APR must be below a certain threshold. This lets the state and any auditors know that the company doing the loan is not a predatory lender and is giving you a good loan. The APR includes all fees and costs associated with the loan, including your PMI. The issue we are running into is that the PMI is so high (and therefore the APR is too high) that it is flagging the loan as a high-cost loan. This is a big no-no for a mortgage because it does not comply with State rules and regulations. The only way to get the APR lower is to bring down the rate, which in turn lowers the APR.
With a Freddie Mac loan, the lowest rate that we have is 4.125. In order to make this work you would have to buy the rate down to the low 3’s.”
I’m looking to see what an independent expert has to say about this. 5000 would be tacked onto the loan, and I would pay 3000 up front. It really seems excessive. I’m planning to stay in the home long term so I’m inclined to go along. Sorry for the lengthy question, but I’d really value and appreciate your take on this.
Looking through the numbers you emailed it does seem the costs of the loan are a bit high for the loan size. It is not common for lenders to run into a high cost refinance on HARP loans. I think its possible you could find a better priced loan with some additional shopping. Statistically you will save money working with a mortgage broker over a lender- while this does not always hold true brokers do have the ability to shop your loan with multiple lenders, and according to the US general accounting office this has resulted in better costs for loans based on all other factors being comparable. My experience has been that mortgage lenders who currently service a loan that qualify for HARP have a tendency to be significantly overpriced for the refinance.
Freddie Mac does not require you to do your HARP refinance with your existing lender, and allows both lenders and brokers to handle the refinance for you. I worked closely with the California Assoication of Mortgage Brokers for a number of years, they have many quality members who are very good at their jobs and perform their work with competitive pricing and high integrity.
There are also certain lenders who do a good job at monitoring closing costs and ensuring the costs do not come in too high. Based on that I would recommend you shop the loan with a few additional lenders and brokers. Your closing costs should not exceed 3% of the loan size. When shopping its a good idea to ask for a written loan quote for closing costs. It gives you a better footing to compare pricing, and you can use the quote to negotiate better terms with whomever you choose to move forward with.
If the only option left is to do the refinance as you described you would come out ahead in the long run doing the refinance. You get a savings of 3% a year, that works out to roughly 4200.00 in interest savings per year, so you make your money back very quickly.
Feel free to follow up should you have any further questions.
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