I have been watching the mortgage interest rates diligently for the past two to three weeks. Yesterday, I kicked off the refinance process.
I had already obtained quotes directly from the big banks (Bank of America, Wells Fargo & Chase) but most of their rates included an one point fee (which I do not want). And even with that, their rates were not very competitive.
I also obtained several quotes from brokers using Zillow’s online mortgage quote system. One of the quotes actually looked promising and I got to talk to the broker who called back quite promptly. His quote (for 9/28/09) was:
- 30-yr fixed, “conforming” loan (<$625.5k) @4.875% with zero point. Fees $2800 ~ $3000 out-the-door.
By “out-the-door”, he meant that it included lender fees plus title charges and recording fees (but excludes prepaid items like home insurance or interest). This broker had a handful of reviews, most of which were good. But one negative was that the loan required impounding for property taxes and insurance. To waive this, an additional fee of $780 was required, bringing the total closing costs to $3600 ~ $3800 (note: my LTV or loan-to-value, is below 70% so a high LTV was not the reason for the impound).
I then looked at the credit unions in my area (San Francisco bay area). The most promising rates were from Star One credit union. Their rates yesterday were:
- 30-yr fixed “conforming” loan (<$625.5k) @5.00% with zero point.
- 20-yr fixed, “conforming” loan (<$625.5k) @4.75% with zero point.
- 15-yr fixed, “conforming” loan (<$625.5k) @4.375% with zero point.
Their estimated “out-the-door” closing cost is around $2000. This closing cost number is quite accurate according to a friend who closed a mortgage with them last year.
I crunched some numbers to compare the three options. This is illustrated in the figure below:
The 20-yr mortgage requires 20% more monthly payment than the 30-yr mortgage but gets paid off 10 years earlier. The 15-yr mortgage requires 41% more monthly payment compared to the 30-yr mortgage but gets paid off in half the time. Given the relatively high discount (25 basis points) in going from 30-yr to 20-yr yesterday, I decided to apply for the 20-yr fixed mortgage.
As I already had an account with Star One, it was a relatively painless process to apply for the mortgage. Everything was done online, and I was charged $12 for the credit reports (paid by credit card). I was approved instantly by the online system and I locked in the rate on the spot.
According to the warning in the online application, mortgage applications with Star One are taking an average of four to six weeks to close. We will see how it goes.
By the way, the rates for Star One today are
- 30-yr fixed, conforming jumbo loan (<$625.5k) @4.875% with zero point.
- 20-yr fixed, conforming jumbo loan (<$625.5k) @4.75% with zero point.
- 15-yr fixed, conforming jumbo loan (<$625.5k) @4.375% with zero point.
On hindsight, there is a 50% chance that I might have picked the 30-year fixed mortgage if I were to lock today. 🙂