Following up on again on our Oregon mortgage refinance example, we ran into a small problem.   Remember, our borrower’s home appraised at $427,000 and you (playing the part of the borrower, I am playing the loan officer) owe $341,000 and expect to pay about $7,000 in closing costs.  This will bring your new Oregon mortgage refinance loan to 81.5% loan to value and we know lenders require mortgage insurance on loans over 80% loan to value.  The mortgage insurance premium will run $78.30 per month or $939.60 per year.  Our first question is, can we avoid mortgage insurance and still not end up needing to bring in the $6,400 you need to close?  What happens if you can’t spare $6,400 right now? 

            Fortunately, we have several options.  The first thing I need to understand is your personal and financial goals that might affect your decision to refinance.  You have told me that you came to me because you took out a three-year adjustable rate loan when you  purchased your home and now your interest rate will jump from 5.5% to 7.5%.  While you enjoyed the lower payments during the three-year fixed rate period, things have changed.  You are now not as fond of your mortgage loan as you were when you purchased your home three years ago.  You have been hearing about problems in the mortgage industry lately and the hardship many people are in when their interest rate adjusts.  You believe you would be happier with the security of a fixed rate loan. 

            This is a good reason to refinance.  I might be able to look over your existing loan and find that overall it might still be a good loan program for you.  But if you sleep better at night knowing your rate is fixed, then let’s get it fixed.  Fortunately, your home has appreciated and now we are very close to being able to get rid of your old mortgage insurance and have a new loan without this additional cost.  One simple option is to have your lender pay some or all of your closing costs.  Sounds great, yes?  But why would they do this?  Lenders do this only if you are willing to accept an higher interest rate.  If you want your lender to do this for you, they would be interested in paying your loan closings cost up to 2% of the mortgage amount.  This way you can secure a new mortgage at 80% loan to value or $341,600, and the lender will pay 2% of that amount, or $6,832.00 of your closing costs.  Since you will have $600.00 left over after paying your existing mortgage, you can use $168 of that to pay the balance of your closing costs and still have $432.00 to put in your pocket.  WOW, now your new loan is under 80% loan to value, you will not need to purchase mortgage insurance and you have cash left over.  Sounds good?  That depends on what your new interest rate will be and your personal plans.  If I look at today’s rates, I see that for a conforming 30 years loan, I can offer you 6.25% if you pay your own closing costs, but that if you want the lender to pay 2% toward your costs, the rate will go up to 6.75%.  That is .5% higher. 

So, let’s see where we are.  One option is to secure the new mortgage for $348,000 @ 6.25% interest.  This will make your monthly payment $2,143.00 plus $78.60 for mortgage insurance, for a total of $2221.60 per month.  Our second option calls for your Lender saving you $7,000 in closing costs and you received $432.00, so now you have a new mortgage $341,600 @ 6.75% for payment of $2,216 per month.   You owe $6,400 less, have $425 in your wallet and save $5.60 per month.  Is this the best option? 

Sorry, we still have more work to do.  This is only part of what I do.  When you go to www.OregonsBestMortgage.com for an Oregon mortgage refinance or an Oregon home mortgage for your new home, it is my job to review these options and others.  When I come back to you, I may have already tried several options, finding some better than others.  I will pick the best options and break down the differences into a simple format so you can make an educated choice. 

  Next time I’m blogging, we will try more options and then see which is your best option.