Why We Refinanced

We knew when we bought our house a year ago that we’d be refinancing our mortgage at the first-possible opportunity. Fortunately, we were able to do just that at the beginning of December. Some of the reasons to refinance were immediately obvious to us; others took some time to manifest themselves:

  • Our original loan was an FHA 203k loan. The 203k is a rehab loan, which was a good way to get the funds we needed to turn our long-neglected house into something livable, but it also came with a stupid (in my opinion) clause that the borrower *must* have mortgage insurance for the first five years of the loan, even if the loan-to-value ratio is less than 80%. (Most lenders don’t require private mortgage insurance when the amount owed on the loan is 80% or less of the home’s appraised value.) So we’d continue to pay an extra $238 fee every month if we didn’t refinance.
  • Our original rate was good, but not as good as the new rate. Our FHA loan was a fixed 4% loan. While this is a good rate, we decided this time to go with a 5/1 ARM (adjustable-rate mortgage), which offers better initial rates than a fixed-rate mortgage. The new rate is a whopping 2.75% for the first five years and, although it can adjust after that initial fixed term, it can never go any higher than 7.75%. (There are also caps on how much it can adjust per year.) There’s also a fixed-rate conversion option if we decide to play it safe after five years. But since we don’t know how long we’ll be in the area (not sure if Maryland is our “forever home”), a super-low starting rate is a good way to have affordable housing for as long as we’re here.
  • Our monthly payments were too high. Well, they weren’t actually high, per se, but we’d like to leave the option for me to go part-time or stay at home once we start a family, and the payments were too high to manage on Jordan’s income alone. The low interest rate combined with the new, lower principal make either of these arrangements achievable.
  • Our original bank was a comedy of errors. Let me count the ways: They didn’t send us statements on time for us to make payments, and they didn’t allow online payments. They misapplied our payments in various ways, once even applying the entire payment to principal and then telling us our payment was late because interest hadn’t been paid. They kept telling us to send them our hazard insurance information, even after we’d sent it to them *three* times. They sold our loan and didn’t tell us to whom they’d sold it, instead sending us a letter that said they’d sold it to themselves. (We didn’t discover this last one until we were trying to get the payoff to refinance.) By contrast, our new bank (credit union, actually) has been a pleasure to work with. Communication has always been punctual, professional, and precise. They offer a variety of payment options. Their title officer fought with the bank our loan was sold to (I was party to a conference call when this was happening) when they didn’t want to release our payoff until the middle of January (at which point our interest rate and application would have expired). Their closing options were flexible–we closed on the loan at 6:30 PM in the comfort of our own home.

How has your experience been with mortgages (if you’ve owned a home)? Have you had positive or negative experiences with lenders? Would you consider an adjustable-rate mortgate?