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currently we have 400k on a 20 year mortgage at 3 and 7/8 percent.

We can move to 3 1/8 percent 15 year mortgage. The guy says this should save us around 70k over the life of the mortgage.

The monthly payment would be 300 more a month, which wouldn't matter to us.

The fees would be

processing 435
underwriting 665
closing coordination 315

appraisal 450
flood certification 14
closing/escrow 834
lenders title 792
mortgage recorrding 55
VA Recording 1337
daily interest 174

Some of these seem a bit fishy, whats the difference between underwriting and processing, for example?

The only other info I can think of is that we tend to make a few extra payments a year, and that we have already refinanced once from our initial mortgage (last october, so we are barely into our 20 year mortgage). That time, we went from 4 7/8 to 3 7/8, and paid no fees.

Im just trying to decide if this is a good deal, and if some of those fees are bogus.

Thanx

EDIT --

So, after about 1 minute of google searching, I found on zillow a bunch of offers

3.125% 265 in fees
3% ~850 in fees
2.875% ~2600 in fees

all 15 years. The difference in saving over the life of the mortgage is 4300 between each 1/8 %. Im seriously considering higher two rates. Note the highest was the other guys best offer, with over 2k saving in fees. I talked to the guy with the new offer; he sent me a nifty spreadsheet where I enter the current/destination loans, and it shows the amortization for all the payments. You can edit any payment and see how it affects the rest of your payments.

Now my concern is this seems to good to be true, given the pre-edit offer. The company is first financial mortgage. Could this be a fraud?

Below is the summary sheet of the three offers.

enter image description here

  • How does this compare with the previous refinance you did? What paperwork and documents did they give you with the estimate? – mhoran_psprep Jun 28 '12 at 1:13
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    "The guy" sounds like an expensive option. Talk to another guy at another bank. My last refi was less than half that expense. You "save" about $3000/yr. Not bad, but let's not extrapolate out 25 years to make it sound so high. Get the total cost under $2000 and break even will be under 8 months. – JoeTaxpayer Jun 28 '12 at 3:00
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    Generally if you can not reduce your rate by a full point it is rarely worth the expense and hassle of the refi. Though the 265 option sounds enticing.. but I would not be surprised to find out they have fees that are not being disclosed directly in the initial offer. – user4127 Jun 28 '12 at 13:44
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    @Chad - Sorry, I disagree. The math is right there. With a full disclosure of the costs, a refi to save even 1/8% can make sense. For OP, $400K, means that in the first year, 1% ~ $4000 in interest, so every 1/8% ~ $500. I've had multiple refinances at zero cost, my lowest rate drop was from 5.24% to 4.99%. The savings was about $50/mo. At that point, it's a question of whether the time is worth it. I had all required data at the ready, so less than an hour to pack it up, zip-file and send over. Another hour for the closing. – JoeTaxpayer Jun 28 '12 at 15:43
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    @JoeTaxpayer - Certainly there are exceptions. But if you have to pay 2-4k for that refi plus spend hours getting it ready closing, probably having to change where you send the payment, potentially several times as your new mortage gets sold and resold... ick – user4127 Jun 28 '12 at 16:50
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Since you say that you can afford making a few extra payments each year, I would recommend doing so. Indeed, just adding a $400 monthly extra payment (a little over two extra payments a year) on your current mortgage will pay it off in about 16 years, and you will save the refinancing costs. In fact, those refinancing costs of nearly $5K put towards paying off your current mortgage will help a lot; the outstanding balance declines very slowly in the first few years of a mortgage.

  • updated my question – hvgotcodes Jun 28 '12 at 12:00
  • btw, i was wondering about that, thanx... – hvgotcodes Jun 28 '12 at 12:38
  • A potential 3/4% drop on the $400K balance is $3000 interest the first year. Not something to ignore. His new offers look far better. – JoeTaxpayer Jun 28 '12 at 15:15
  • @JoeTaxpayer Yes, the new offers are far better. I haven't had the time to re-write my answer to make it compatible with the new information. – Dilip Sarwate Jun 28 '12 at 16:06
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Fees are the way for the brokers to earn money. They name them in different ways, but it doesn't really matter. Instead of "processing fee" you can read "our earnings". Same.

The question you should be asking yourself is whether you want to pay for the service, and whether the savings justify it. You can try and reduce the fees by bargaining with the broker, and its their margin, so they may give something up. Or not, they do want to make a profit.

Specifically the fees as I understand them:

Underwriting fee usually is charged by the lender, while the processing fee may be charged by either the lender or the broker (or both). "Closing Coordination" is probably charged by the receptionist.

In addition to the first three, you should also look at "VA Recording". I don't know what charges it covers, but I would check with the state if its really their fee, or a disguise for something else.

Appraisal is probably the lenders' requirement and can rarely be waved.

Same for the flood certification.

Closing/escrow are charged by the title agency and should also include the title insurance (or is it the one under "lenders title"?). Almost $1600 for escrow fees seems a bit exaggerated.

Mortgage recording is probably charged by the county for the recording of the deed. What VA recording is I cannot imagine.

Interest is interest, calculate it to be correct, its prorated until the next statement.

  • VA Recording might be for Veterans Affairs. – mhoran_psprep Jun 28 '12 at 1:14
  • its virginia... – hvgotcodes Jun 28 '12 at 1:29
  • @littleadv, updated my question – hvgotcodes Jun 28 '12 at 12:00
  • "Closing Coordination" is probably charged by the receptionist. Wait, the receptionist is not a salaried employee? – Michael Jan 5 '16 at 22:37
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The advice I've been given on deciding about re-fi's is:

  1. Total up all the fees, points, etc. - the "cost" of the loan.

  2. Determine what you'll be saving with the lower rate.

  3. Calculate when the "break even" point is - the accumulated savings equals the loan cost.

  4. What's the minimum time until you might consider selling or refinancing.

  5. If the break even point is later than this date, then it may not be worth it. If it's a lot sooner than this date, then it is worth it.

The fees you list do look rather high, but I have to admit with my own mortgage re-fi the fees seemed excessive too. Shop around - bankrate.com is useful for sanity checking costs in your area. I don't think there's value in worrying about the individual fees or what the fees mean or if they're fair: Ultimately that's their price tag. So just total the fees up and compare with other lenders, and take the best option that meets your requirements.

  • "Determine what you'll be saving with the lower rate." agreed, and I believe my reply and linked answer makes that calculation clear. Check it out if you have the inclination. – JoeTaxpayer Jun 28 '12 at 15:09
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In a similar question Does it make sense to refinance a 30 year mortgage to 15 years? I offer the right way to calculate savings.

The new payment doesn't tell the whole story, you can go from a 30 year to 15 year and find that your payment goes up, even with a nice drop in the rate. Similar, by going from the remaining time on a 30, say 20 years left to go, by refinancing back to a 30 year amortization, the payment drops far more that your true savings.

In your case year, I would go with the lowest cost, fastest time to break-even. The extra savings for the lower rate pushes the B/E out an extra 4+ years. I'd not be so interested in that.

  • to which option are you refering? Going from 3 7/8 to 3 for $500 (he decided to eat more cost) seems like its worth it. It saves us ~70k over the life of the mortgage – hvgotcodes Jun 28 '12 at 16:01
  • The last one above looks like $700 out of pocket. If cost on middle dropped, well, go for it. – JoeTaxpayer Jun 28 '12 at 16:10
  • also, i am confused by your answer, specifically the middle paragraph. I dont care about the monthly payment, only the longterm cose. In fact, this refinance has my monthly going up. – hvgotcodes Jun 28 '12 at 16:15
  • Read the linked article. To understand the "breakeven" on closing costs, I describe a process. It will tell you the true breakeven. The actual amortization of the new mortgage is another issue. My lecture (link) clearly helps avoid the confusion of the changing remaining time from old mortgage to new. – JoeTaxpayer Jun 28 '12 at 16:18

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