You’ve heard the pitch before: “Interest rates are at historic lows!” While the home mortgage industry has seen a significant amount of churn in the last several years, with foreclosures and bad loans making headlines, there is still a whole industry built on mortgages and refinances. As interest rates have dropped, again, the mortgage makers are finding themselves very busy, again.
Things have changed a lot in the refinance business. Banks appear to be much more serious about making “good” loans. Lenders, brokers, and appraisers all seem to have become a bit more conservative than the freewheeling money machines of a decade ago. Still, even with the caveats, many homeowners will see numbers like 4.5% APR and think it is time to spin the re-finance roulette wheel, again, as I did.
Though my adventure right now is my third refinance in the last decade, I still had to reacquaint myself with all the variables. It’s not just the rate, but the term, the type of loan, the lock date and rate, the closing costs, the points, and all the other knobs on the wheel that can be adjusted. This time, too, there’s been a lot more discussion about credit reports, debt to equity ratios, and appraised value.
Even knowing what I know about the housing market crash, I have been stunned at the appraisal process this time around. My mortgage broker hired an appraiser who also runs a real estate business — which means he should really know the market. When his appraisal came back having dropped my home value by 12% in just two years, though, I started questioning the work. With good reason, I might add.
The appraisal I received had pictures asserting to be my family room and living room, but they were from a completely different residence. Our master bathroom was marked down for having only “modern” fixtures. And then there were the comparables. Four of the comps were drawn from an entirely different municipality, with no adjustment for the different zip code. The data on two of them was completely wrong, with crazy errors like claims of four-car garages (a drive-by would show they only had two) or baths with $50,000 more in upgrades. The biggest shock was that the appraiser’s word basically stands. I spent days trying to find better comps and documenting data errors, to be told “sorry, we disagree”. I probably should have dropped the deal and gone elsewhere at that point, but it would have meant paying fees and costs all over again. I did make sure my broker knew all of the issues, but it would have been a lot better to hire someone more competent and get a “do over”, especially since it might have made as much as 1/3% difference in the interest rate.
Generally speaking, financial experts say you should look at refinancing if current rates are at least 1/2% less than what you are paying. You have to look at costs, points, fees, and the extension of your loan term as factors in whether that lower monthly payment will really save you money. The mortgage business is not the wild west it was last decade, but there is still some opportunity to save — if you “act now!”
