What questions should I ask a mortgage broker when refinancing a condo in Wisconsin?

Question

I live in Wisconsin. I'm trying to refinance my condo right now. I have next to no experience with refinancing, but I'd like to do some research on the subject before I start asking these questions, so I can talk the same language. I have very little equity because the price of my condo dropped (based on other condos in my building) to about the same amount of my mortgage principal, but I've had two adjustable mortgages since September 2005. An arm and a balloon at different interest rates. I've never missed a payment, and I have excellent credit.

The arm is still in place ($130K roughly). The balloon ($30K roughly) expired on October 1, and BMO Harris Bank never told me before it happened. So now I have finance charges I need to pay on the first month after it ballooned. They said if I refinance another adjustable with them, they will wave the $1.5K charges. But one broker I talked to said I should just go with him and he'll get me a better deal. He also said because I don't have much equity (won't know until an appraisal) and I didn't take advantage of the 2009 stimulus money (not sure what he was referring to), I might be eligible for something in 2013 if I refinance.

What are the best questions to ask a mortgage broker when trying to refinance a condo, so they don't take advantage of me? Also, what things should I do to make this simple and to save money, with the lowest interest rate? Everyone keeps saying, "Go with a credit union because they have better rates" or "Don't shop too much because each time you go to another bank, they pull your credit, and your credit score drops". How can I shop for a better interest rate if I don't do that?

Answer 1

Its a huuuuuuuuuuuge topic, and to answer your question in full will require a book, with a small booklet of legal advice attached to it. I'm not going to write it here, but I'll give you some very specific points to start your research with:

1. ARM/Baloon - big NO NO. Don't touch that. Get rid of those you have any way you can, and then never ever do it again. That's the kind of crap that got us into the housing bubble mess to begin with. Especially with the rates as low as now, the only future with ARM/Baloon is that you're going to pay more, way more, than your initial period payments.

2. Rates - the rates now are very low. They were even lower 12-24 months ago, but are still extremely low. Make sure you get a fixed rate loan, in order to lock these rates in for the remainder of the loan. Any ARM loan will have higher rates in the future. So go with FIXED RATE.

3. Period - fixed rate loans are given for periods up to 30 years. The shorter the period, the lower the rate. However, at the level they're now, you're practically getting money for free (the APR is comparable to the inflation) even for 30 yr/fixed loans.

4. PMI - private mortgage insurance - since you don't have much equity, the lender is likely to require you paying PMI. This is a significant amount of money you pay until you have at least 20% equity. It changes from lender to lender, so shop around and compare.

5. Government assistance - that's what the broker was referring to. There were programs allowing people refinance even under-water mortgages. Check what programs are still available in your area. Some banks will not refinance with less than 20% equity, but some government assistance programs may help you get a loan even if you don't have enough equity.

6. Closing fees and points - that's the money out of your pocket. Shop around, these vary wildly. Generally, Credit Unions, being non-profits, are cheaper on this item specifically, while comparable to big banks on everything else.