First time homeowner considering refi, is it worth it?

[Anonymous]

In August 2012 I became a first time home buyer in Nevada.  My rate is 3.75% on an FHA loan.  The house was purchased in concert with a non-profit who provided $15K towards principle.   I bought the house for $100K.  The current loan balance is $79,277.   The $15K that the non-profit provided amortizes over 5 years. I don’t make any payments to the non-profit and don’t have to pay them back at all.     I pay $78 per month in MI which will auto drop off in September 2017, so I have $2418 MIP left.  Current value of the house is approx. $145K.

Current payment is $597.49 ( P $136.72, I $247.32, Escrow $213.45)

My FICO is between 729 and 733. I am new at this so looking for some advice re the true cost of two quotes on the table.  The format of each quote is a little different because they sent it to me that way.

One question that I have is the difference between “initial note” rate and “APR” rate.   Does the “APR” refer to the rate including the closing costs?  For the 1st year or for the life of the loan?

Is the “total cost” of the loan the “prepaid items” + “closing costs”?  What about the commitment, application, tax, flood, Interest and Settlement fees?

Bank “A” quote:

• Conv 30 yr fixed, Initial note: 3.625%, LTV 55.47%, APR 3.78%

• Est. closing costs $2,613.50, Est. prepaid items $1,378.25

• Refi $79,277 + $2,613.50 + $1,378.25 (- $68 dis.) =  $83,200 Total Cost/ Loan amount

• Payment: $515.26 (P&I $379.43, Haz Ins $57, RE tax $78.83)

Bank “B” quote:

• Conv 30 yr fixed, Initial note: 3.875%,  APR 3.986%

• Est. closing cost $1,955.00, Est. prepaid items $926.26

• Refi $79,277 + $1,955 + $926.26 = $82,158.26 Total Cost

• Loan Amount $83,000 ( -$841.74 cash back / refund to me of closing costs)

• $83,000 - $1,303.04 (Fees: commit, app, tax, flood, Int, settlement) =  $81,696.96 Amount Financed

Thank you.

[disdreamin]

I'm confused - when I read this, I see your interest rate either pretty much staying the same or going up.  To me, that doesn't make sense long-term.  Am I reading something wrong?

[bdhu2001]

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@Anonymous wrote:

In August 2012 I became a first time home buyer in Nevada.  My rate is 3.75% on an FHA loan.  The house was purchased in concert with a non-profit who provided $15K towards principle.   I bought the house for $100K.  The current loan balance is $79,277.   The $15K that the non-profit provided amortizes over 5 years. I don’t make any payments to the non-profit and don’t have to pay them back at all.     I pay $78 per month in MI which will auto drop off in September 2017, so I have $2418 MIP left.  Current value of the house is approx. $145K.

Current payment is $597.49 ( P $136.72, I $247.32, Escrow $213.45)

My FICO is between 729 and 733. I am new at this so looking for some advice re the true cost of two quotes on the table.  The format of each quote is a little different because they sent it to me that way.

One question that I have is the difference between “initial note” rate and “APR” rate.   Does the “APR” refer to the rate including the closing costs?  For the 1st year or for the life of the loan?

Is the “total cost” of the loan the “prepaid items” + “closing costs”?  What about the commitment, application, tax, flood, Interest and Settlement fees?

Bank “A” quote:

• Conv 30 yr fixed, Initial note: 3.625%, LTV 55.47%, APR 3.78%

• Est. closing costs $2,613.50, Est. prepaid items $1,378.25

• Refi $79,277 + $2,613.50 + $1,378.25 (- $68 dis.) =  $83,200 Total Cost/ Loan amount

• Payment: $515.26 (P&I $379.43, Haz Ins $57, RE tax $78.83)

Bank “B” quote:

• Conv 30 yr fixed, Initial note: 3.875%,  APR 3.986%

• Est. closing cost $1,955.00, Est. prepaid items $926.26

• Refi $79,277 + $1,955 + $926.26 = $82,158.26 Total Cost

• Loan Amount $83,000 ( -$841.74 cash back / refund to me of closing costs)

• $83,000 - $1,303.04 (Fees: commit, app, tax, flood, Int, settlement) =  $81,696.96 Amount Financed

Thank you.

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Your interest will be going up and the amount you still have to pay for PMI is less than the closing cost for the new loan.  I absolutely see no benefit in a Refi.  As poster above mentioned, I have the same question. Am I missing something?

[Anonymous]

Bdhu2001,

I agree that it does not make sense.  I really just wanted another set of eyes to take a look at it, in case I was missing something.  I still don't really understand what items are considered to constitute the "total cost" of the loan.  In the quotes there are "closing costs", "prepaid items" and "fees"  all of which appear to be separate.  Not sure why "prepaid items" and "fees" aren't just called "closing costs" as well. 

[Anonymous]

disdreamin,

You're reading it right I think.  As I mentioned in my other post, since this is my first time doing this, I thought it would be a good idea to have another set of eyes look at it, in case I was actually reading something wrong.   You validated my sense that this doesn't make sense.  Thx.

[ShanetheMortgageMan]

Neither of these would be loans I'd refinance into. 

Bank A gives you a lower rate, but the closing costs eat up the savings you'll have over the first couple years.  You'd eventually be saving money, but it'd be a very small amount each month.

Bank A gives you a higher rate, saves you on the PMI but the closing costs eat away nearly all of that savings, plus you'll have a slightly higher P&I payment every month.

Stick with what you have.  If you see you can get rates around 3% I'd start to consider refinancing, but even then on you loan amount I'd want to see you save close ot a full 1%.

[disdreamin]

The only other thing I can think to mention is to check 15 year rates for your refi.  Personally, when we were able to drop from a 30 to a 15 and have our payments stay approximately the same, we considered it a HUGE win!  If, by some chance, a 15 getst that low, it might also be something to consider.  Obviously if lowering monthly payments is your goal, this is not the way to go, but if your goal is to save money in the long run and stay in the home for a good length of time it might be something to consider.