I am having problems refinancing my house. I owe 180,000 I have about 50-55,000 to put down and pay closing costs. I have been locked in 2 times with 4.875...Suntrust then Citi. Having problems with appraisals!   Imagine that!! The first appraisal with Suntrust was $180,000 and they wouldn't except it. My broker then paid for the 2nd appraisal himself with Citi and it came in at $141,000 to low for me to refi ltv 80/20, and they won't do 90%. Sooooooo he has gotten me approved with Wellsfargo and they said they would do 90/10 ltv and will except the $141,000 appraisal. But now I am waiting till my broker can lock in 4.875 again!!! 

I know I can do a recast on my original loan at 5.625 putting down the whole $55,000 and it will cost me $250.00 to do this. The recastwould lower my payment and get rid of my $144.00 PMI payment. I would like to kill 2 birds with one stone as they say and get the most bang for my bucks by refi gettiing lower % and ridding myself of the PMI. If I can't get under 5% I don't think it is worth the closing costs expense since I can do a recast for only $250. What would a loan modification do? My original loan is with BofA $183,000. 30 Conv 90/10, 5.635% payment $1054 plus PMI $144.00. I am not familiar with the "Modification". I did try to get BofA to lower % from 5.625 with the recast but no deal........

Appreciate any advice or input. thanks, Judy

Judy

bird in the hand worth two in the bush... $250 cost is paid back in about a month with the savings you listed.

So take the RECAST ( i previously said modification - my mistype - -  sorry)  because it saves you money today. If in the future your loan officer has the right deal refinance with them. You win twice.

Better to get two doubles and put points on the board for your team then to keep swinging for a homerun and missing.

Make Sense?

makes no sense...if you qualify to refi, income and asset-wise, then why would a lender agree to a modification???  without financial hardship, I don't see that happening...

if you can get the modification, then great...but remember there are consequences with a modification i.e. impacts your credit - so no 2 for 1 deal as Steve mentioned, at least for some time as it'd take some time for your credit to improve...and if you look a little closer Steve, $250 is for the recast, not modification...

I think the confusion is that her "recast" was accidentally later identified as a "loan mod". OP had it right - three different things: recast, mod, refi.

Chances are, if you qualify for a refinance or recast, the lender is not going to allow you to modify. Modification is reserved for folks who are in trouble in some way . . . and the lender grudgingly acknowledges that it would be MORE costly to foreclose than it would be to change the terms of the loan. For instance . . . someone owes $250,000 at 7% and can't make the payments . . . but the home is only worth 200,000. Lender knows that foreclosing is going to net them MAYBE 160,000 after all costs. So, instead of taking a 90K hit, they work with the borrower to determine what interest rate would make the loan payable (even if it is below market), and they "modify" (change) the existing loan to the new payment. Sometimes they shave some off the principal as well as lower the rate, sometimes they dont. SOmetimes the modification includes an interest only option to build back up to full payments, etc . . . all dependent on what makes the deal survivable for both parties. Target is to pay no more than 31% of one's pre-tax income for the mortage.

I'm not sure what you are being quoted as a rate today from your lender . . . but if you plan to keep this loan for a long time, even a rate of 5.125% would be a big difference over time, and may actually be better than the recast. Maybe not, if you think you will only be tere a bit longer. . . .

Do this:

Figure out the new principal and interest payment at 5.625% (recast)

Then figure out the new principal and interest payment at the current refi rate (with the slightly larger loan, as you will have to include closing costs).

Subtract the second number (refi) from the first number (recast).

That is the difference in payment for both options . . . keep that number.

NOW . . . take the closing costs (don't include the escrows, as those are things you will pay anyway at some point) - just the actual closing costs. Divide the cost of closing by the difference in payments you got above.

The answer is the exact number of months that it will take you to "break even" or "make up for" the extra expense of refinancing. If you plan to live in the home longer than that number of months, then the refi is the better option. If you plan to move before that time, then the recast is the better option.

This will give you a dollar for dollar picture, and there should be a clear winner.

Thanks Kelcey,

I didn't understand what a modification was. and that was one of the things I wanted to know.

I will try the calculations and see how it comes out. I plan to retire and live the rest of my life in this house.

Thanks for the help.

great post Kelcey...too much typing for me :)

Hello Judy,

I can only imagine the frustration you have gone through.  I would suggest any questions about refinance or restructre of your mortgage to a professional.  Home Afforardablity Act and FHA would be two great options to look at.  

Voyage Home Loans

Mike Kim  

Ok, Judy.

Did the post clear up modification, or do you still have any lingering questions?

I think you will find a winner in one of the other two options - sounds like your current situation isn't terrific, but it isn't terrible, either - you have some strong options - and as long as you plan to stay put, all of this will work itself out just fine. Best of luck!

Thanks to everyone's input. I have learned alot from this site. I put the recast in motion.

I figured the difference between it (5.625%) and the refi (4.875%) was only $40 a month and only

cost $250 compared to several thousands for closing costs, also wasn't worth the aggreviation and

stress with the appraisal problems. I have great credit and excellent FICO scores so if things settle down or

rates ever get down to 4.5 I can still do a refi. down the road.................Thanks Everybody!

Have a GREAT weekend! Judy

Glad you were ale to make a decision you can live with! Check in here to follow rates over the coming year or two . . . if you liked your loan officer, call him first, sounds like you went through quite a bit together, haha.

Hello Judy!

Thank you for presenting a challenge for us to wrap our minds around... 

The following is a snapshot of what appears to be the overall scenario (approximate costs) that you are working with:

• Purchase Price:               $203,500
• Down Payment:               $  20,350 (10%)
• Loan Amount:                   $183,150 (90% LTV)
• 1st Payment Date:           01-March-2008
• MI Monthly Amount:          $      144
• MI Cutoff Date:                 01-April-2015
• Current Balance:             $179,433
• Current Value:                  $141,000
• Current Liquid Assets:     $  55,000 (=>3% yield potential)

In your brief description it sounds like you have excellent credit and that you can comfortably afford your current payments.  While you do not specifically state what your motivation is to make a change from your current loan, it does sound like it is influenced by the desire to do the following:

1. Remove MI from your payment (why pay MI when the home is currently worth less than what you owe?)
2. Reduce your current mortgage payment (possibly to pay the difference to your principal each month and be debt free when you retire.)
3. Reduce your principal below current market value (feeling of safety when you owe less than what your home is worth.)

While I agree with you that choosing a recast option (referenced below as Recast Option#1) is the mildly better choice from a logical and emotional point of view (about $2,200 savings over 5 years and a $1,000 cost over 10 years), when compared to a refinace, I am compelled to tell you that you should definitely consider two other options that cost less and save you more over the next 5, 10, 20, 30+ years.

1. Recast Option#2: Paydown your current mortgage to $158,250 (78% LTV) which will only cost $22,000 and remove your MI. Payment= $911 ($287 mo savings)
   • This will yield an actual cost savings of $26,500 in the first 5 years over your original choice (Recast Option#1) and allow you to keep $33k in savings.
2. Take no action Option: Keep everything the same as you have now and maximize both your liquidity ($55k in savings) and tax deduction $1,200 extra per year.
   • This will yield an actual cost savings of $37,500 in the first 5 years over your original choice (Recast Option#1) and allow you to keep $55k in savings.

You clearly seem to be concerned with your financial security in the future and are trying to make the best choice possible to help you achieve your goals.  This is why I took the time to dig a little deeper into the numbers that you are analyzing to give you a chance to look at your position from another perspective.  A perspective that takes both your short-term and long-term fiscal health and security into consideration is warranted for you at this point in your life.  You should seriously consider the value and security that comes with keeping your cash liquid (in a savings/equity/annuity account) versus illiquid (as equity in your home) in the time of an economic recession and predicted 'slow' recovery.  Any problems with health, employment, or natural disaster for you or a loved one could easily leave you in need of access to cash. 

You should definitely consider seeking the advise of two or more Certified Financial Planner's, prior to taking any action that would see you moving money from your liquid reserve account(s), to a theoretical equity postion in a home that will most likely continue to decline in value before reversing the trend in the next 6-18 months simply to avoid an MI payment that you can afford to pay.

Realistically; the fact that you owe more than what your home is currently valued at is one of the primary reasons you should think long and hard about all of your options before you consider moving your money from a place that it can actually serve you when needed to a place that will never earn a return on investment... your home.

That's right... even when your home appreciates in value, your 'down payment' does not earn any interest, or rate of return, at all.  It is important to understand that as of this moment, the $20k + that you 'invested' as a down payment is gone (a real cash loss).  In addition; it will take approximately 20 years to recover this loss if your home begins appreciating from this point forward at a sustainable 3% growth rate (based on a current value of $141k).  Any additional money that you 'invest' into your home to remove your MI and lower your payment comes at a very high risk of continued loss of equity (real cash loss), regardless of how short or shallow any remaining loss may be.

You should consider these two questions: "Do I believe it is safer to have my home paid for free and clear when I reach retirement?" or "Do I believe it is safer to have enough money in a secure and liquid account that allows me to pay off my home, if I want to, when I reach retirement?"

Congratulations on finding this forum and thank you for taking the time to post your question and seek the advice from a diverse group of dedicated professionals.

Have a Great Year, 

Richard