If you are trying to refinancing your underwater mortgage be careful your lender does not charge you excessive fees. Shop around.
Q: We are underwater with our home. We have never been late on our payments and have good credit. We called our lender and we were accepted for the HARP 2.0 loan program. Our loan is owned by Freddie Mac.
The closing costs were going to be around $4,800 with a settlement cost of around $6,200. All this would be rolled in to our loan. Our loan is $119,000 but our house is only valued at $69,900.
I think the closing costs and settlement cost are too much and not worth it. What are your thoughts?
A: Being that far underwater makes it very difficult to feel like spending $5,000, $6,000 or especially $10,000 on refinancing your mortgage. It could take years (or decades) before your home value climbs or you pay down this loan enough for this kind of refinance to make sense. Not only that, it almost seems like you’re putting more money into a loan and you may not be getting much out of the loan modification.
On the other hand, if you don’t do it, you’ll wind up paying a much higher interest rate on your existing loan than you would if you refinanced.
Here’s how to think about it: If you cannot afford to keep your home with the current payment, and keeping your home is something you really want to do, then you should go ahead and refinance under the HARP 2.0 program.
If, however, you are thinking about moving relatively soon, or if keeping the house doesn’t mean that much to you, then you could either try to sell the home in a short sale or simply do a deed-in-lieu of foreclosure and hand the house back to the bank.
Because the bank isn’t asking for the cash upfront to close, there’s little risk to doing the refinance. The bank is clearly counting on you wanting a lower monthly payment. Boosting your loan from $119,000 to something close to $130,000 just means you’ll pay extra interest on those closing costs and fees for the term of the loan.
But I have to say I’m surprised at the closing costs you’ve been quoted. The HARP 2.0 refinances aren’t supposed to be that expensive, and certainly not 4 to 8 percent of the loan amount. You could certainly go back to the bank and ask them to explain each and every fee and try to negotiate some of them.
Just don’t be surprised if there is no flexibility. The banks continue to be in the driver’s seat when it comes to refinancing and loan modifications.
One final note, you don’t have to go back to the bank that gave you the loan to get a loan modification. It’s quite possible this bank’s fees may be way too high and you might do better by looking at other lenders and shopping around. Only if you find that all other lenders’ costs are about the same will you then be able to make an informed decision on whether to stay with this bank or go to a different one.