Refinance

Quick update on exercise: I swam 1500 yards today, the 16th straight day working out. Believe it or not, I was swimming along with the medium-speed people.

I called a local bank yesterday looking for some information on refinancing our home loan. It wasn’t the first bank I tried; some months ago we talked to a loan officer at the regional bank that currently services our mortgage. That didn’t go anywhere, and I have a bone to pick with the banks. But first some background. . . .

We bought our home in June of 2004, right at the height of the housing market. We probably paid more for it than we should have; but we like it a lot, and it was our first time buying a home. It’s one thing to look at some numbers on a spreadsheet and say, “Gosh, it’s easily 20% more per square foot than other homes that have sold in the same town,” and it’s quite another to say, “We’re willing to bargain ourselves into a place where we might walk away from this great house.”

Despite the cost, we can afford our house payments and have never missed one. In fact, we’ve been paying quite a bit extra on our mortgage and home equity line of credit in order to lower the amount we pay in interest. We have good credit scores and are ideal borrowers, at least if your criteria is getting repaid.

We’re trying to refinance because our primary mortgage is an adjustable rate mortgage that’s set to change next year. We’d like to lock in a loan now while rates are at ridiculously low rates at websites like www.lainaa-heti.fi. But we’re having the hardest time.

You see, the value of our home has gone down by about 20% to 30% depending on whom you ask. (The tax assessor has the higher value, naturally.) So we either just barely have equity — less than 5% — or we’re significantly underwater. The banks we approached don’t want to have anything to do with refinancing a house that has less than 5% equity and would prefer that we have 20% equity. (If our house was still worth the purchase price, we’d have more than 25% equity. sigh)

And here’s the bone that I want to pick with the bank. Now that we own a home, whether we can afford to repay a loan doesn’t seem to matter at all, but when we were buying a home it was the only thing they looked at. In 2004, the bank probably would have let us buy a shotgun shack at the same price we paid for our newly remodeled home. The banks simple don’t want to lend now.

When we first started looking in 2003, every loan officer, financial guru and realtor had the same message: “Get pre-approved for the largest loan that you can afford. That way you’ll know what price ranges to look at.” So we did, and we can still afford that amount — probably more. Of course, the easy credit and and large pre-approvals helped create the bubble by encouraging people (like us) to buy expensive house. They also all said, “Don’t worry about the variability in the 7/1 ARM. In a few years, you’ll have enough equity to refinance into a 30-year fixed rate loan.” (Even our lawyer said so. sigh)

But now, when all we want to do is to renegotiate the terms and rates, we’re told that everything is based on what the house is worth, not what we can afford.

I hate banks.

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3 Responses to Refinance

  1. Leslie M-B says:

    Have you considered checking with a credit union? I find them much friendlier.

  2. Jeff Mather says:

    Leslie, that is a very good idea. I think there’s a credit union at work that we can join; maybe they can help a brother out.

  3. Leslie M-B says:

    Alternately, you can take out what should have been your equity and buy a decent home down the street from me. Recent sales in my neighborhood have been $58-$65K for a 2- or 3-bedroom place.

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