$200 for mortgage principal reduction?

[Focus]

I recently looked into refinancing our mortgage, but decided it's not worth it unless the rate hits 2 percentage points below our current one (5.375%). That hasn't happened, and that's fine.

Alternatively, we've decided to make a payment toward our principal to lower the amount of total interest we'll pay and shorten the term of the loan. We're hoping to do this on an annual basis.

I was surprised to find out that the firm currently holding our mortgage (MetLife) requires this to be pre-approved and then charges a $200 "principal reduction fee" every time. Is this standard?

 

[Westernskies]

I recently looked into refinancing our mortgage, but decided it's not worth it unless the rate hits 2 percentage points below our current one (5.375%). That hasn't happened, and that's fine.

Alternatively, we've decided to make a payment toward our principal to lower the amount of total interest we'll pay and shorten the term of the loan. We're hoping to do this on an annual basis.

I was surprised to find out that the firm currently holding our mortgage (MetLife) requires this to be pre-approved and then charges a $200 "principal reduction fee" every time. Is this standard?

Never heard of this before. In fact most loan servicers offer a line item on the payment coupons for "additional principal". It may be a fee to process an additional separate principal payment, if so just add the extra $$ to a regularly scheduled payment.

I'd certainly read the fine print on your loan (again ) and also inquire if this "principal reduction fee" is even legal in your state; it could be interpreted as a mortgage pre-payment penalty that many states do not allow.

If they charge you $200 to process a reduction in the principal balance on yor loan , how do they reconcile the monthly principal reduction associated with your regular mortgage payments?

If it is allowed under your contract I'd shoot Snoopy off the roof of the MetLife doghouse and find another mortgage lender. Discouraging and/or penalizing you for responsible prepayment is usurious, IMO.

 

[W2R]

No, it's not standard. I never paid a dime to pay off my mortgage principle early.

 

[travelover]

.............
I was surprised to find out that the firm currently holding our mortgage (MetLife) requires this to be pre-approved and then charges a $200 "principal reduction fee" every time. Is this standard?

Just one more reason to love banks and insurance companies.

 

[martyb]

I've only had 3 mortgages in my life, but that kind of fee wasn't a requirement of any of them. Never had one with MetLife, though. Maybe you can talk them into dropping it. I've found out over the years that many of the fees associated with mortgages can be waived, and often will be, to keep a customer happy or to gain new business. When I worked as a realtor, I was routinely get fees dropped for various things for my clients. It's worth a try. Just act like you might take your business elsewhere...

 

[walkinwood]

Are you sure of your calculations & research? A neighbor refinanced for less than 2% below his current loan and told me that he would come out ahead in 24 months (or some short duration like that). I do not have access to his calculations.

May be worth a change just to get out of the need to pay to reduce your principal.

 

[Focus]

Who in this forum is ever satisfied with his/her calculations and research?

I actually pulled the trigger on refinancing several weeks ago when rates hit new lows, but by the next day (when MetLife got my request) the rates had started creeping up. If they dip again, I'll reconsider.

Another factor is that getting a 15-year loan at this point would add a couple of extra years in mortgage payments. I hesitate to do that, even at such favorable terms. So, in the end, it seemed a better route to pay down the principal and save about the same amount in interest.

Thanks, everyone, for the feedback so far.

 

[tryan]

wow .... $200 a pop; that would called a "prepayment penalty" . No that is not standard.

 

[brewer12345]

Who in this forum is ever satisfied with his/her calculations and research?

I actually pulled the trigger on refinancing several weeks ago when rates hit new lows, but by the next day (when MetLife got my request) the rates had started creeping up. If they dip again, I'll reconsider.

Another factor is that getting a 15-year loan at this point would add a couple of extra years in mortgage payments. I hesitate to do that, even at such favorable terms. So, in the end, it seemed a better route to pay down the principal and save about the same amount in interest.

Thanks, everyone, for the feedback so far.

If you are that close, how about a 5 or 7 year ARM? There is a significant rate difference and you can pay it down as fast as you like. A year ago I refi'd a 15 year note with9 years to go to Pen Fed's 5/5 ARM. Cut my rate significantly and I can easily withstand the small interest rate risk in the reset because the note would be mostly paid off by the time it resets.

 

[zinger1457]

If you are that close, how about a 5 or 7 year ARM? There is a significant rate difference and you can pay it down as fast as you like. A year ago I refi'd a 15 year note with9 years to go to Pen Fed's 5/5 ARM. Cut my rate significantly and I can easily withstand the small interest rate risk in the reset because the note would be mostly paid off by the time it resets.

That's what I did, took out a 7/1 ARM and set my payments to pay off the loan in 7 years.

 

[Westernskies]

I recently looked into refinancing our mortgage, but decided it's not worth it unless the rate hits 2 percentage points below our current one (5.375%). That hasn't happened, and that's fine.

Alternatively, we've decided to make a payment toward our principal to lower the amount of total interest we'll pay and shorten the term of the loan. We're hoping to do this on an annual basis.

I was surprised to find out that the firm currently holding our mortgage (MetLife) requires this to be pre-approved and then charges a $200 "principal reduction fee" every time. Is this standard?

... you want a variable annuity and fries with that MetLife Happy Meal?

 

[Focus]

I've never considered an ARM. Always been a fixed-rate guy, for better or worse.

It turns out that MetLife thought I was asking for a recast.

My understanding is that with a recast you make a principal payment and your monthly payments are reduced (i.e., recalculated) but your term stays the same.

I was seeking to pay down the principal, keeping my monthly payments the same but reducing the term.

Any thoughts on one versus the other?

 

[Gumby]

You could also get a new 15 or 10 yr fixed rate with whatever favorable rate exists today and then structure the payments so that it is paid off in the same time you were going to pay off your current loan. Any mortgage calculator will tell you how much extra to pay each month to accomplish that.

 

[target2019]

We followed this method. Get the amortization chart for the full loan. Pay off principal in amounts that equal next principal payment (or several). That way you can track accurately. We paid of a 30 year loan in approximately 8 years. Near the end I think we made a 10K or so payment, rather than continue with the process.

 

[Focus]

In the end, found out MetLife allows me to set up online an automatic withdrawal of an extra monthly amount to be applied toward the principal. They don't charge a fee for this, and if we stick with it, it should shorten our 20-year loan to about 16 years. So, that's what we'll be doing. My thanks to everyone who chimed in.

 

[Westernskies]

In the end, found out MetLife allows me to set up online an automatic withdrawal of an extra monthly amount to be applied toward the principal. They don't charge a fee for this, and if we stick with it, it should shorten our 20-year loan to about 16 years. So, that's what we'll be doing. My thanks to everyone who chimed in.

Darn. A happy ending. With evil corporate greed and paying off the mortgage as key components, this thread was poised to go viral...

 

[mnopqr]

Did you ask if they would consider lowering your interest rate? I was considering re-financing but checked first with our mortgage holder (our credit union). They offered to drop our rate (for a 15 year) from 4.75% to 4.00%, for a $500 fee. No re-financing, no closing, no change in term or amount of the loan. Only lowering the monthly payment. I was surprised and thrilled. It goes to show - it never hurts to ask...

 

[Focus]

It's worth a try, mnopqr. I'm going to ask...

 

[Focus]

Got my answer: MetLife doesn't lower the rate for a fee (apart from traditional refinancing). But it would have been moot anyway. Have you seen mortgage rates lately? They've shot up.

 

[mnopqr]

That's too bad. Well, it was worth a shot. (Generally speaking, I have found our credit union to be much more consumer-friendly than various banks and other mortgage-holders we've used. Maybe it's the nature of a credit union versus a bank.)