Too good to be true usually is
Last week was pretty exhausting with work starting at 5 or 5:30am every single day thanks to a big event I oversee each year. But somehow in the midst of the craziness, I managed to look into the drop in mortgage rates.
To give a little background, when I bought my house in 2006 I chose a 5-year ARM at 6.25%, a rate that at the time was considered pretty good. Last September, though, there was drop in rates and I was able to refinance to a 30-year fixed at 5.625%. I signed the papers on my birthday and I considered the savings of $80 a month a nice birthday present to myself.
Fast forward to this week, though, and my birthday present is not seeming so special anymore. The reason? Well, if you’ve been within spitting distance of a newspaper this week, you’ve probably read that rates are dropping and some borrowers have been able to secure a 4.5% rate on a 30-year fixed mortgage.
This is why I don’t gamble or play the stock market. The inner voice that nags and says, “if only you’d waited to double down or to sell that stock…” would drive me crazy. And right now, the voice is saying “if you’d just waited to refinance until now…” Hindsight is 20/20 though, and who knows, even if jumped into the fray and refinanced this week, a month from now the rate could be that much lower.
So instead of playing the “if only” game, I decided this week to squelch that voice and to make the most of my situation. As attractive as the low rates are, I have no desire to pay thousands of dollars of closing costs again since I have no idea how long I’ll own this house, which makes it hard to estimate the time it would take to make the new lower rate worthwhile.
While looking around on my current lender’s (Wells Fargo) website, I came across a program that lets current borrowers in good standing apply for a free (no closing costs, application or appraisal fees) refinance. While the rates are not as attractive as the full refinance option, they are still lower than what I pay now.
I actually looked into this option over three months ago, but getting a real-live person on the phone was almost impossible. By the time I did, the rates had risen again so it wasn’t worth the effort.
Somehow this week I mustered up the energy to try again. I called the customer service line and Chad answered the phone. He took me through all the questions only to find out the free refinance rate he could offer was 5.625%. He offered to take my number and call me if that rate went down and although I happily gave him my number, I never expected to hear from Chad again.
The next evening around 5:45pm, the rates dropped to new lows and to my surprise, Chad gave me a call. He could now offer me a 5.375% rate with no closing costs or fees. I asked a ton of questions because it seemed like one of those too-good-to-be-true offers. After all, mortgage brokers don’t exactly rank with nuns and teachers on the selfless list.
So after going through all the practical questions (There’s really no costs? I can apply for this again if the rate drops even further in the future? The loan terms all stay exactly the same? etc.), I point blank addressed the pink elephant in the room…er, on the phone. I asked Chad, “So, what exactly is in it for Wells Fargo?” According to him, the reason they offer such a program was because they wanted to retain good customers – i.e. those who paid their mortgage each month on time and were in no danger or foreclosing – to offset the “bad” customers and restore confidence to their financial position as a company.
On the surface, that made some sense to me, and even though I was still skeptical I decided there was no reason I shouldn’t at least look into it so I started the application process.
Yesterday in the mail I received my loan packet with a Good Faith Estimate and Truth in Lending Statement (sounds suspiciously like an oxymoron…). The Good Faith Estimate checked out and according to the document the only up front fee I was responsible for was a notary fee for the final closing documents.
The Truth in Lending Disclosure Statement was a bit more cryptic and for the first time I felt a little empathy for the people who signed up for loans they didn’t understand and now find themselves in a difficult situation. The difference is, I have absolutely no intention of signing anything until I understand exactly what it means.
My confusion is a result of two boxes right next to eachother with very different figures:
Box 1
Finance Charge – the dollar amount the credit will cost you: $172,628
Box 2
Amount Financed – the amount of credit provided to you or on your behalf: $169,928
The Box 2 total is the outstanding balance on my current loan, and to me a no fee, no closing cost, no BS loan would mean that this amount stays the same while my interest rate adjusts to 5.375%. No?
I’m the first to admit I’m not a genius when it comes to mortgage terms and fees, but I can’t for the life of me figure out where the phantom $2,700 figures in. My mom is a realtor and my dad has his broker’s license so I know exactly where to go for (hopefully) some answers, but if any of you have an idea I’d love to hear your theory!
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