Refinancing charges?

[joesxm3]

My brother rushed off to refinance his $235,000 VA mortgage through Veterans United.

I started asking questions and found that they were rolling $6577 onto his principle.

He got the loan in December 2023 and his rate was 7.625%. The new rate was to be 5.75%.

I think the bank said that the $6577 included paying up escrow and that the existing paid in balance of $2131 would be refunded so maybe the charges are more like $4446.

She said that there was no origination charge since it was an IRRL refinance and no VA funding fee because my brother gets 70% disability.

Later she mentioned a 0.938 point charge which seem to be about $2375.

I guess they do another title search and maybe title defect insurance plus recording fees.

There seems to be about $2100 left that would include this stuff.

Do these fees seem reasonable?

The almost 2% drop in interest rate sounds nice, but this is before the 50 basis point fed cut. Do you think that is priced in?

I cancelled the immediate deal and plan to get my lawyer involved when we try to refinance next. Today things are too sudden and confusing. Also we are waiting for our fathers probate to close in January so it seemed prudent to wait to see how much money my brother might get ($50,000?). Also maybe more rate cuts?

Thoughts?

 

[aja8888]

Mortgages follow the interest rate (yield) of the ten year bond. But mortgage rates do fall in harmony with the market rates. Around here (Texas), I'm seeing mortgage rates around 5.5%.

Almost a 1% fee to buy down the rate seems high, but it all depends on the provider. All fees are negotiable, title policy, other recording fees, probably not.

 

[jazz4cash]

The fees seem borderline reasonable but the principal is small so the benefit of a reduced rate is mitigated. Also is the term extended? Can’t quite tell but are some of the fees due to a rate buydown? Did you inquire about a rate lock/floatdown to see if rates react to a Fed cut?

 

[joesxm3]

I don't think there was a rate buy down. They gave the impression that the current VA rate is in the 5% zone.

Not sure if I am missing something. I am under the impression that "refinancing" the mortgage means simply getting a new mortgage at the going rate and paying off the first one with the second either at the same company or a different one.

I am thinking that "buying down a rate" is something like them saying "the rate is 6%" and me asking "can I pay an extra 1% up front to lower the rate to 5.50%?"

The term resets to 30 years, but that is only a 11 month change.

 

[aja8888]

I don't think there was a rate buy down. They gave the impression that the current VA rate is in the 5% zone.

Not sure if I am missing something. I am under the impression that "refinancing" the mortgage means simply getting a new mortgage at the going rate and paying off the first one with the second either at the same company or a different one.

I am thinking that "buying down a rate" is something like them saying "the rate is 6%" and me asking "can I pay an extra 1% up front to lower the rate to 5.50%?"

The term resets to 30 years, but that is only a 11 month change.

Joe, you said "Later she mentioned a 0.938 point charge which seem to be about $2375 - a point charge is just that, a rate buy down of 1% (point charge). Call it what you want....they are making you pay an upfront fee for 1% of the mortgage rate.

 

[joesxm3]

One thing I have been wondering about.

It seems that the bank would be better off leaving my brother paying the original 7.65% mortgage, yet they contacted him to initiate the refinancing.

I suppose the account representative could have done it out of the goodness of her heart, but I suspect the bank had another reason.

Would they value the cash in hand from the charges more than the extra interest stream?

Would they be doing this to proactively lock in the 5.75% before months pass and the eventual refinancing occurs at a lower rate?

 

[Dash man]

One thing I have been wondering about.

It seems that the bank would be better off leaving my brother paying the original 7.65% mortgage, yet they contacted him to initiate the refinancing.

I suppose the account representative could have done it out of the goodness of her heart, but I suspect the bank had another reason.

Would they value the cash in hand from the charges more than the extra interest stream?

Would they be doing this to proactively lock in the 5.75% before months pass and the eventual refinancing occurs at a lower rate?

Banks love mortgage refinance because of the fees. They never expect a mortgage to last the full term, always expecting a sale or refinance.
It pays to shop around for lower fees.

 

[RetiredHappy]

When you said you went to cancel the immediate deal, are you still talking about your brother's mortgage? I would hold off refinancing for another year as interest rates continue to drop. Give it a year and it should drop closer to 3 to 4% range.

 

[joesxm3]

They were going to send some sort of lawyer or notary to his house this Friday with the contracts to sign (that he would not read nor understand if he did). That seemed like rushing him along although they may have or would have given him disclosure of the fees in writing.

They were in the process of preparing the documents. I told them that we will be waiting at least until January after the probate closes. Maybe longer as you suggest.

My friend who is an appraiser and town selectman told me that we need to shoot for the fees being no more than 12 times the monthly payment reduction. That is, break even in one year.

When we get to January I will see what the mood is regarding rate cuts. When we do refinance I will be involved and hopefully things will proceed in a more controlled manner. I probably will enlist my attorney to help guide us. He does various stuff but mainly real estate law.

 

[RetiredHappy]

I am still confused. Is your brother trying to refinance your father's home that is currently in probate?

 

[jazz4cash]

I don't think there was a rate buy down. They gave the impression that the current VA rate is in the 5% zone.

Not sure if I am missing something. I am under the impression that "refinancing" the mortgage means simply getting a new mortgage at the going rate and paying off the first one with the second either at the same company or a different one.

I am thinking that "buying down a rate" is something like them saying "the rate is 6%" and me asking "can I pay an extra 1% up front to lower the rate to 5.50%?"

The term resets to 30 years, but that is only a 11 month change.

I don’t think you re missing anything. I can’t be sure if the .9xx point charge is buying the rate down or something else.

 

[CRLLS]

One thing I have been wondering about.

It seems that the bank would be better off leaving my brother paying the original 7.65% mortgage, yet they contacted him to initiate the refinancing.

I suppose the account representative could have done it out of the goodness of her heart, but I suspect the bank had another reason.

Would they value the cash in hand from the charges more than the extra interest stream?

Would they be doing this to proactively lock in the 5.75% before months pass and the eventual refinancing occurs at a lower rate?

From my observations, the bank may not own the current loan. They may own it for a short time after you sign and then sell it. If so, they get paid to do the front-end work and get you to sign. The more often they get you to refinance, the more money they make, with no rate change risk on their part. It was different way back when.

 

[joesxm3]

My father's house has been sold and the proceeds are in the estate account. My brother bought his house in December 2023.

The reference to probate settling is in regard to possibly using money that my brother might get from the estate to pay down some of the principle and reduce the amount of the refinanced mortgage.

I had made a long thread several months ago asking advice to keep my brother from squandering the inheritance or being taken advantage of. He is very ignorant financially.

At this point I am leaning toward setting him up with a Fidelity account that automatically transfers $200 or $300 each month to his checking. I want to keep the option of paying down the house but people pointed out that if we put the money against the house it could be lost if things go sideways and it would limit his emergency reserves.

It was hard getting the woman to explain the charges, especially the point or whatever it is. Once I decided that we would push off doing anything I stopped pressing for clarification.

 

[joesxm3]

That is a good point about the bank possibly having sold the loan. However, they seem to have assigned him to the woman that processed him in December and she seems to keep in touch.

Next time I visit I will try to see his monthly paperwork. Although I suppose Veterans United could have sold the loan but possibly kept the job of managing it.

Seems like a dangerous rabbit hole for me to think about.