Refinance

DH & I watch House Hunters on HGTV fairly regularly & the one thing that drives us crazy, apart from the people who are always complaining that their dining room table won’t fit in the space (get a new table!), is the way buyers & agents define the word budget. It seems to mean ‘suggestion’.  The buyers say they have a budget of $700,000 and the agent shows agent shows them a home at $780,000 and it remains a viable option.

If DH & I should happen to have a budget of $700,000

hahahahahaha!!! HAHAHAHA!!! hahahaha!!!

um, as I was saying, should such a thing ever come to pass we wouldn’t even look at a $780,000 home. It’s $80,000 over budget, therefore cannot be bought.

Not that we are these wonderful money managers who stick to a budget

hahahahahaha!!! HAHAHAHA!!! hahahaha!!!

but with large ticket monthly payments we absolutely do. We figured out the most we can afford to pay & that’s the most we can afford to pay, so if that means no pool in the preferred location or a pool in another location because pool AND location cost too much then something gets dropped. The end.

I think they should do a show called Mortgage Hunters that shows people refinancing their existing mortgages. They get a choice of 3 different products & then have to debate the pros & cons of each & you get to see the process & what happens when the appraisal comes up short or the overtime isn’t allowed for income because it isn’t regular enough.

We’re considering a refi. It’s been 8 years since the last one & while we have a good rate, there are better rates & better rates mean lower payments.

Though since we are still paying the same amount as our original mortgage 13 years ago, for us it means more money toward principal. We currently overpay about $100 a month.

We have two choices

A. conventional 15 year mortgage which would raise our payment due by $30 so we’d be paying only $70 extra but would pay it off in 13.2 years

And they could roll in all but the $400 upfront application fee.

But they want an appraisal.

And you’ve seen my house

DSC_5027

My earth bermed, sod roofed house

Appraisers don’t know what to  do with it & underwriters hate it. It’s unusual!  AAAACCCKKK!!! It’s impossible to find comps so values are mostly best guesses & it’ll be a bitch to resell. (this is a useful bargaining chip should we someday be faced with a foreclosure but a HUGE detriment when it comes to getting a loan). So we face a decent change of being declined on the loan.

Plus it could take 60 days just to get an appraiser out here & 90 to close. And we want to start on building the mud room in 30-60 days and cannot be in mid build when the appraiser arrives or build it after he comes but before the loan closes.

Meaning it could be November before we can build the mud room.

Meaning I will go ANOTHER winter with no mud room because if it isn’t done by the end of September the time available for building it pretty much vanishes until next April.

But there would be no MIP & it’s starts out with a shorter term & quicker payment schedule.

B. a 30 year FHA no cash out streamline refi which would lower our payment due by $100, giving us a $200 over pay (which would change to $275 in 5 years) and would be paid off in 13.6 years.

And they don’t want an appraisal

But they do want about $1500 in closing costs, which is at the top end of our closing cost budget.

The third option has a lower payment but is over our budget ($3500 in closing costs) so we are not considering it.

Additional fun facts given by math loving DH are that at the 10 year mark (when Havoc starts college & we are looking to cash in on the equity) the 15 year loan will have $28,000 still owing & the 30 year will have $41,000 owing.

And that $13,000 difference could be very useful.

But there is the appraisal issue & being out $400 when it fails

But $1500 up front & $13,000 difference

or doing A, having it fall through & being out $400 PLUS still needing to come up with $1500 to do B.

And what about the mud room?!?!

DH really likes that $13,000 difference of the first one but I really like the no risk no appraisal on the second one.

Which mortgage will our buyers choose?

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5 comments to Refinance

  • Darcy@SomewhatMuddledMusings

    I'd go B. Your closing costs would be paid off in 15 months (not counting your original $100 over payment), and you'd still be paid off within 15 years as the original. If appraisals are that hard to come by, I'd go that route. 

    Good luck on getting the mud room done! We're looking at a tear down to the studs (and maybe stud replacement) on our master bathroom, and the budget is about $8k – more than we have right now, but it's desperately needed. We bought the house with these problems because the house was cheap, and we thought life would be different. We'll have to have it done before we can begin to think about selling the place. So we'll have to look at pulling the equity out of ours in a few years to do it, I'm sure. I don't look forward to the loan process then.

  • Lynnette

    I guess the question is really whether the risk of $400 and no mudroom in the shortrun is worth saving $13,000 in the long run. I hate paying interest so if it were me, I'd do whatever I could to make the first option work but it does get tricky with the appraisal and everything. Good luck with whatever you decide!

  • SFD

    Anything longer than a five year term is economically prohibitive (in other words, if you want a guaranteed rate for more than five years, you're looking at a few points higher than the five year) in Canada, so most are between three and five year terms.

    I'm entering year two of a five – my longest term ever as all my previous were three – and I'm not sure I'll lock for five ever again.

  • Rinda1961

    I'm terrible at these things! My main concern is always getting the house paid off faster (I refused to let DH continue to refi, unless it meant we'd be paid off at the same time. Our house will be paid off in about six years! Can't wait.
    Back to you, I personally want choice #1 because I really, really want to read your stories of the appraiser trying to figure out what the hell to do with your house! But, for the reasons mentioned by the other posters, option #2 seems to be the more sensible option. And, you can always entertain us with stories of building the mudroom . . . 
    Rinda

  • rynerman

    Delurking to say I would also choose B for the reasons set out by Darcy.  Am having bad flashbacks though because we refied about 2 years ago and it was a PROCESS and my husband is in commercial RE so he didn't mind wrangling  We got a really good rate, but I think it's mainly because my husband just wore the guy down over two months of constant hassle about market rates, going rate (other RE terms I know nothing about), etc.

    I had to stop watching a lot of those housing shows specifically because of the budget thing.  Drives me nuts.  When we bought our first house years ago we chose our realtor because (among other things) she never even tried to show us a house that was above our budget.  Who the heck has a budget of X but can really spend X+80,000??  Feh.