Friday, June 8, 2012

Why we refinanced: Stories of 3 homeowners

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 percent 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 percent forever because the prime rate had been so low," she explains. "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 inland 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 percent 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 previously experienced.
The new loan has a 30-year term and fixed 4.375 percent rate.
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, where he lives with his partner Michael Fierstos, a 54-year-old retired Air Force service member, and their four children.

McCarns obtained a 25-year fixed-rate mortgage at 5.99 percent from a bank near the house in Martinsville, Va. It was July 2011. The loan wasn't advantageous, he explains, 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."
The refinance, orchestrated in February 2012, "could not have gone smoother" and was "much faster and much less painful" than he'd expected it would be, he adds.

Not even the appraisal was a problem. The 4,100-square-foot home has four bedrooms, five bathrooms and an office. It was bought for $281,000 with an initial valuation of $316,000 and a 20 percent 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 percent 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.

Lower rate, lower rent

A lower interest rate motivated Bill Tierney, a 26-year-old public relations executive, to refinance his mortgage.
Tierney owns and occupies a 1,000-square-foot condominium in Philadelphia. The condo is a bi-level unit. 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 percent. He financed the rest with a 30-year fixed-rate loan. The only snag was the 5.125 percent rate, which had bumped up almost a full point compared with what Tierney had expected when he had begun shopping for his home several months before the deal closed.

His replacement loan, which he got in February 2012 from a local lender he describes as a "boutique," has a 30-year term, 3.75 percent rate and lower payment, giving Tierney the opportunity to pay more and reduce the debt faster.

"I'm still paying the same amount, so I'm able to 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. He expects the lower payment to give him more flexibility to keep the rent attractive.
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."

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