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Refinancing a home loan in today's lending climate can be horrifically difficult or surprisingly easy, depending on the homeowner's situation. Here, three homeowners explain how they refinanced, what the process was like for them and why they did it.
Peace of mind
Cynthia Guiang wanted to refinance her two home loans in 2008, but an appraisal lower than the combined loan balances thwarted her intentions.
Fast forward four years, and she now has a new mortgage — and greater peace of mind.
The new loan of $674,500 paid off a $412,000, 20-year first mortgage with a fixed rate of 5.625% and a $248,000 home-equity line of credit with a variable rate, plus closing costs and "a little cash out," Guiang says.
The HELOC "had been at 4% forever because the prime rate had been so low," she says. "It's a desirable rate, but with a HELOC, at some point I would have to refinance it, and God only knows what the interest rate will be at that time."
The Guiangs paid $417,000 for the house in 1999 and have refinanced several times since. Cynthia is a communications consultant, and her husband, Orlando, is an optometrist. They're both 48.
The 2,500-square-foot residence has four bedrooms and three bathrooms and is a couple of blocks from the coast in San Diego. Built in 1976, but now with major renovations throughout, the house was appraised at $900,000.
The 74.9% loan-to-value ratio required an exception to the lender's loan guidelines, part of a process Guiang says was "much more difficult" than she'd experienced. (Bing: What is a loan-to-value ratio?)
The new loan has a 30-year term and 4.375% fixed rate.
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The loan is "extended out," Guiang says, "but I can always make extra payments, and my monthly outlay is $1,500 less, so I can breathe easier."
A 'good decision'
A lower interest rate prompted Mike McCarns, a 54-year-old energy-efficiency program director at a government consulting firm, to refinance his mortgage within months of having bought his house. He lives with his partner, Michael Fierstos, who is a 54-year-old retired Air Force service member, and their four children.
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McCarns obtained a 25-year fixed-rate mortgage at 5.99% from a bank near the house in Martinsville, Va., in July 2011. The loan wasn't advantageous, he says, because an error in his credit history — reported late payments on a car loan — forced a quick decision at a higher-than-market interest rate.
"I was able to straighten out the error with the credit union immediately," McCarns says, "but it had to get corrected through the credit agencies, which is a painful process."
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The refinance, which Quicken Loans orchestrated in February, "could not have gone smoother" and was "much faster and much less painful" than he'd expected it would be, he says.
The appraisal wasn't a problem, either. The 4,100-square-foot home has four bedrooms, five bathrooms and an office. The purchase price was $281,000 with an initial valuation of $316,000 and a 20% down payment. The subsequent appraisal was $315,000, a drop of just $1,000.
The new loan has a 15-year term and 3.99% fixed rate. McCarns' monthly payment jumped $200, a sacrifice he describes as "a good decision" because the debt will be paid off 10 years sooner.
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Lower rate, lower rent
A lower interest rate motivated Bill Tierney, a 26-year-old public-relations executive, to refinance his mortgage.
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Tierney owns and occupies a 1,000-square-foot, two-level condominium in Philadelphia. The living room and kitchen are downstairs, and the bedroom, bathroom and study are upstairs. Parking is "right outside the back door," he says.
He bought it in March 2011 for $297,000 and put down 25%. He financed the rest with a 30-year, fixed-rate loan. The only snag was the 5.125% rate, which had bumped up almost a full point compared with what Tierney had expected when he had started shopping for his home several months before the deal closed.
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His replacement loan, which he got in February from a local lender he describes as a "boutique," has a 30-year term, a 3.75% rate and a lower payment. But by choosing to pay more each month — the same amount paid previously — Tierney can "chop away more of the principal each month," he says.
Tierney's long-term plan is to get married and move out of the condo in five or six years, keeping it as a rental property.
The appraisal was no problem, and Tierney describes the loan process as "very easy."
"The paperwork wasn't nearly as time-consuming as it was to purchase the place because everything was still pretty current," he says. "It was relatively painless."
