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Breakdown of closing costsOriginal loan was for 480k at 3.25% fixed rate for $2,088 monthly payments for 30yrs. We currently owe 458k and have 28 yrs left. We have been paying an additional $100 towards principal each month.

New rate lender is proposing is 3.15% for $1,990 monthly payments for 30 yrs. Loan amount: $464.5k. They are saying we'll not have to pay anything for this but I see the closing costs on the loan estimate. Would you refinance if that means you could then pay $200 towards principal each month?

Edited to add: *New loan amount: $464.5k *Documents they said were missing were paystubs from the new job I had just gotten a month before closing back then. *It may be notable to say that this lender was our original lender when we first purchased our house. They then sold the loan to a large bank soon after but we noticed this original lender purchased it back as we've been making payments to them since earlier this year. I'm not sure if that's what they mean they need to fix the documents to make it "servisable".. meaning for them to be able to sell it off again?

*Pictures of the new Loan Estimate.[New loan amount][1]

enter image description here

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  • Is the new principal amount the same as what you owe now? Getting a lower rate with no closing costs seems too good to be true (especially given current 30-yr rates)
    – D Stanley
    Oct 10, 2023 at 14:46
  • What does it mean to be “serviceable”? Aren’t they already servicing your loan?
    – RonJohn
    Oct 10, 2023 at 15:46
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    Can you provide some details in the body of your question regarding the missing documents in your subject line? It is conceivable that the bank screwed up underwriting your original mortgage, are now unable to sell the mortgage, and are trying to fix that now with a very much below market interest rate. The comments are talking about the rate being too good to be true which is generally sensible. If that's the only way for the bank to avoid holding your mortgage for 30 years, though, that could be a reasonable explanation Oct 10, 2023 at 16:19
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    @JustinCave That is the curious part, I've never heard of such a thing but who knows. If that's the case it gives OP some leverage to target a better deal, like the lower rate without $5k in costs.
    – Hart CO
    Oct 10, 2023 at 18:14

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I think they mean no cost to open, or no out of pocket cost. you have to pay the old lender early closing fees. It seems like the new lender is just taking the money out of the loan to pay it.

Secondly, the new loan is worse, if you pay the same amount of $2188 then you will be $3000 worse off with the refinancing after 26 years.

Not to mention you will have to put in all the effort closing and opening all new accounts and signing and all that jazz. So if you value your time, then that's another few hundred bucks depending on how smoothly the transition goes.

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    Not all loans have prepayment penalties. The one now being offered to the OP does not, for example. How common such terms are depends on the type of loan and where you are. In this case, "no cost" appears to mean that the cash required at closing is less than the initial payment to escrow. That would be a pretty fair characterization if not for the fact that the loan principal is increasing. Oct 11, 2023 at 4:03
  • ye I think "no out of pocket cost" would be a more fair description. But I think it's fairly common in this business.
    – Aequitas
    Oct 11, 2023 at 4:34
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6%+ is common for 30-year fixed rates currently, so I doubt 3.15% fixed is possible at the moment.

Ignoring the improbable rate offer, they are adding about $5k to your loan principal to drop your rate by 0.1%. If there are no other costs to refinance then the lower rate would offset the cost eventually, your total payments would be a couple thousand less ($2,384) by the time you pay it off in 2049.

Typical advice would be not to refinance in this situation, the payback period on the closing costs is too long. If you move, or a lower rate becomes available before you save the cost of the refinance then you don't come out ahead.

If there was a mistake made and they are offering this rate to entice you so they can sell the loan, then you have some leverage and I wouldn't bite unless they can do better by reducing/eliminating the closing costs or reducing the rate more substantially.

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  • The net closing costs include and are less than the initial payment to escrow, due, in part, to a substantial credit of unspecified nature. And that can probably be paid by rolling over the escrow account of the old loan. Even if not, escrow is the OP's money, not the bank's, so there are no net closing costs that need to be paid off. The ugly thing here is the increase in principal and re-amortization. With those, especially the added principal, I think the bank wins at the OP's expense, the slightly lower total payments notwithstanding. Oct 11, 2023 at 4:18
  • @JohnBollinger That is curious, the details weren't available when I answered, but the increased principal appears to be attributed to rolled in closing costs. Given the lender credit it looks like maybe it's setting OP up for some cash out when dust settles on escrow. Either way not a compelling deal.
    – Hart CO
    Oct 11, 2023 at 4:37
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First of all, that rate seems "too good to be true" given current 30-year rates, which are near or over 8%... It seems like either a "teaser" promotion that will end up being a much higher than advertised rate, or a variable rate, or some other catch.

Even so, a 0.1% drop in interest rate is probably not worth the cost of refinancing. For a 480k loan it amount to $40 per month "savings" in terms of paying less interest. But you're already paying more than the monthly payment, so over 5 years it just means that you'll owe about $2,000 less than what you would with the current loan. If the closing costs are back-end loaded somehow, it's probably at best a wash.

The general rule of thumb is that refinancing only makes sense if it drops the interest rate by 1%, depending on how long you plan to be in the home (the longer you plan to keep the loan, the lower the rate drop can be to break even).

--EDIT--

Looking at the image you added , your closing costs are $15,000, which almost certainly includes about 5 "points" which is another term for prepaid interest. You're paying extra at closing in exchange for a lower interest rate (which is almost certainly not a great deal for you)

This sounds like a very shady way to make someone think they're getting a great mortgage.

In short, they're asking you to pay $15,000 now to save $100 a month - which would take you over 12 years to break even.

--EDIT 2--

Based on your additional info it sounds like they made a mistake with the original loan, and now they are not able to sell it and get it off their books (why they want to do that is a longer discussion). Now they want to redo your loan at roughly the same rate and get all of the documents right this time.

The bottom line is if they are offering a new mortgage at basically the same rate with no additional cost, then yes it's worth it. Even if it's minimal cost to you, the most basic calculation is to divide by the total cost to you by the reduction in the monthly payment - that will tell you how long it will take to make up the extra cost. They may be willing to eat the cost in order to get the loan off of their books.

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    That's not what your image says ($14,745 in closing costs, $15,257 due at closing). It's possible that they just add it to the principal owed.
    – D Stanley
    Oct 10, 2023 at 21:28
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    In any case I wouldn't mess with it - it will take you 12 years to break even on the closing costs
    – D Stanley
    Oct 10, 2023 at 21:29
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    What "missing docs"? Are they forcing you to refinance or just offering you an option to refinance? Was there some mistake on their end and they're covering the closing costs for you on the new loan?
    – D Stanley
    Oct 10, 2023 at 21:42
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    The closing costs are detailed, and I don't see any points in there. The majority is an initial payment to escrow. The largest parts of the remainder are an origination fee and title insurance. There is also a substantial lender credit that offsets a bit of the escrow plus all the other closing costs. If the OP also stands to receive a refund of a similar amount of escrow associated with the original loan, then characterizing the deal as "no cost" seems relatively reasonable. And in any case, escrow is still the OP's money. They don't have to pay it off. Oct 11, 2023 at 3:46
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    Still doesn't look like a good deal, though. Oct 11, 2023 at 3:48
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In the first place, if "no cost" is interpreted to mean "no cash required at closing" then the bank is probably telling you the truth. You're looking at only part of the deal. The total closing costs of $14,745 on the new loan are less than the initial payment to escrow, and you almost surely have the same escrow level on your current loan for the same property. You would get the contents of the old escrow account back, or else it might be rolled over directly into the new escrow account -- either way, I would not expect you to need to bring a check to closing. (But do verify this with your loan officer before considering proceeding!)

But it's dubious and a bit shady to call the deal "no cost", because they do propose charging you some $6000 in various fees, which it appears are being added to your principal. And the whole principal is (re-)amortized over a full thirty-year term. These are real costs to you.

If you paid an extra $200 / month on the new loan, it would take 24 years of 26 total years of payments to break even (in terms of principal owed) vs your current payment strategy on your current loan. Over the whole life of both loans, the savings in interest payments would almost offset the extra principal

This is a bad deal (for you).

The bank didn't collect all the documentation they should have when they issued the original loan, and as a result, they find they can't sell it. They want to fix the problem, and their first offer was all upside for them but almost all downside for you. They want to collect a new loan origination fee? They insist on taking out title insurance when the property is not changing hands (and they already insured it once)?

They should be able to do better. I would probably be looking for something that breaks even in less than five years. The bank has a lot of knobs they can twiddle to write a loan that meets that goal, but I have no idea how motivated they are to get there.

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  • I wanted to update you guys.. We held strong and did not approve the refinance. They even tried getting their name on our home owners insurance but our insurance agent reached out to us to ask us, thank Goodness. Oct 24, 2023 at 3:49
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Original loan was for 480k at 3.25% fixed rate for $2,088 monthly payments for 30yrs. We currently owe 458k and have 28 yrs left. We have been paying an additional $100 towards principal each month.

That means that your original loan would be paid off in 2051.

New rate lender is proposing is 3.15% for $1,990 monthly payments for 30 yrs. They are saying we'll not have to pay anything for this but I see the closing costs were added on the back end. Would you refinance if that means you could then pay $200 towards principal each month?

The difference between the two monthly payments: $2088 and $1990 is due to two things: the change in interest, and more importantly extending the loan so that you are done making payments in 2053.

Trying to ignore the extended loan term would mean that you are only saving $30 or $40 a month in interest. Most of that could be eaten up with the closing costs. I would be wary about agree to their proposed deal.

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    It's not just the changing interest and term change, it's also adding ~5k in principal. Either scenario gets the mortgage paid off in 2049 due to the extra $100/month at current rate or extra $200 after 5k closing and new lower rate, new scenario just a bit earlier.
    – Hart CO
    Oct 10, 2023 at 20:07
  • 10.23 Update We held strong and didn't approve the refi. Guy's boss then kept trying to reach us via text and phone last week saying they wanted to reach out before "sending this up the chain".. Gave them the silent treatment. We told them on our last email 3.125% was not to our benefit. Guess what we get today? They are now offering 2.99%. 🤔 Really curious now what all they're needing from us to sell off our loan. New math (if all else stays the same) would be to our benefit but I can't see the new Loan Estimate yet. I've asked them to email us the new breakdown of all costs for 2.99 rate. Oct 24, 2023 at 4:05
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Outside of the odd rates: Sometimes banks will offer an "in place" refinance to retain accounts that they think are considering refinancing elsewhere, or because they want to artificially inflate their "new loans issued" number. There may also be some games with resetting how much of the payment is interest and how much is principal, if that matters to you.

These often have low/no closing costs since the bank already has all your info.

Read the fine print, understand exactly what they are offering compared to what you have now, and if it's a small change run the numbers to see if it's really worth the effort. Or just decline if you're happy with what you've got and they haven't made it interesting enough.

Refinancing from 6.5% to 4.5, and then to 3.25, were definitely worthwhile for me. 3.25 to 3.15? Yawn.

I am not certain why they think the new loan might be more "servicable" than the one you have, or why you should care. It's their job to explain that to you if they want you to change something. Given the mention of missing income documents, my best guess is that they need that information in order to sell your loan to another bank and are offering you the 0.1% discount as recompense for the hassle. Up to you to decide whether that's sufficient to make you agree or not.

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  • I agree, certainly not worth the effort. I greatly appreciate everyone's thoughts on this. Oct 10, 2023 at 21:48

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