Re: persfin-digest V5 #67-answers to NPNC questions.

From: hic@world.std.com (Howard I Cohen)
Subject: Re: persfin-digest V5 #67-answers to NPNC questions.
Date: Sat, 21 Nov 1998 23:06:26 -0500
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> From: <Camil@concentric.net>
> Subject: Are these NPNC Fees Reasonable 
> 
> Dear Persfin Members:
> 
> I have a 30 year Mortgage that was Just bought by PNC Mortgage C
> I have 25 years left with a balance of approximately 98,000.  My
> interest rate is 8.125%.  I asked PNC could they refinance my Lo
> in house without any closing cost and Points.  They could refina
> today 10/12/98
> at 7.25 % with the following Fees.
> 
> $500.00 out of pocket fees:
>    * covers cost of application, appraisal and Lock in Fee.
>    
> 0.25% ($245) origination fee ( I still don't know what this is)
> 
> $375.00 Attorney Cost.
> 
> Total $1120.00
> 
> My Questions are:

 1.  Are these fees above reasonable for refinancing a NPNC 
mortgage ?

I'm not a broker, I'm a home owner. BIMHO, they are not. A true 
NPNC should be just that. I never paid any of the charges you list 
except on one or two occasions (just completed my 6th NPNC) I paid 
$200. appraisers fee. But see my latest posting to Pers-fin. I've 
cc'd you on it. Sounds like the bank is 'at it again.' I'm sure 
they sit around and think up ways to get into your pocket. 


 2. Is 7.25 a good interest rate to refinance a 8.125 interest 
mortgage ?
       This would give me a annual savings of about 600.00 per 
year.

Today it is probably okay. I just closed for 1/2 a point less, but 
my broker says rates have inched up a bit since I locked in. Also 
remember, the important tactic is to spend nothing and lower your 
rate. The lower the better, but with a true NPNC, it really 
doesn't matter. Of course it effects your monthly interest 
charges, but you're not trading off anything. Get any lower rate 
you can for NPNC, then do it again as soon as you can get a better 
rate. After all, it isn't costing you anything.

 3. In refinancing my 30 year mortgage in which I have paid 5 
years into, should I get a new mortgage with a lower rate for the 
25 years or should Irefinance for 30 years ?

Asking for 25 years might simply confuse the lender. Sort of like 
asking the Super Market manager to sell you 5/6th of a can of 
soup. Take the whole can and use what you need. The metaphor isn't 
perfect, but in reality, take the 30 year and pay it off at the 25 
year rate. This procedure means generating your own amortization 
schedule to follow (or approximately follow), but there's lots of 
software around to do that for you. Or you can simply pay into the 
principal as much as you want. The interest charge is always P 
times I-rate. That's primarily all the bank wants. The rest is 
principal, and you could (and should) pay in as much as you can 
afford each month.

 4.  Is there ever a situation you would refinance a mortgage for 
a longer period than you have left of your you current mortgage, 
even if the NEW  interest rate is lower?  

Yes - see above.

IF so why ?

Other compelling reason is referred to above. Namely, how fast YOU 
CHOOSE to pay it off. Saying it another way, on the longer term 
you are paying less P (like 1/30th instead of 1/25th - speaking 
very approximately - but correct in principle). Note that the 
interest is always the same (P x I-rate). And changes only when P 
is reduced, and has NOTHING to do directly with the term. Now here 
is the real 'killer answer' to you question. Take the mortgage for 
as long a term as reasonable - typically 30 years. Be committed to 
as little principal as possible but pay more each month than is 
required. Then you are reducing the principle faster, and best of 
all, if you have a tough month, simply pay the lessor amount. It 
thus becomes entirely YOUR choice, not the bank's..

 5. Based on the Prime Interest rate at anytime what would be 
considered a good and fair mortgage loan rate ?
      Prime + ? 

That's really a question for an ecomomist with a strong financial 
background. But here is my simple ssessment. I think the mortgage 
rates tend to track the 30 year bond which is rather remote from 
the prime. The prime generally influences short term rates. Like 
credit cards, business borrowing - 60 days, 6 months, etc. Also to 
complicate things, the rate the FED sets is called the 
'over-night' rate which is what banks charge each other to lend 
one another money overnight to have the cash to meet banking 
requirements for capital availability. On the one hand that's even 
shorter than the prime, and on the other hand - I'm not really 
sure exactly what it is and how it works. Maybe a more scholarly 
pers-finner would amplify these several interest rate concepts 
more accurately that I have.

My mortgage broker said that the FED just lowering the overnight 
rate and doesn't immediately effect mortgage rates. It takes a 
while.  
I think a good estimate  to use is to pay maybe 1 1/2 to 2 points 
more than the 30 year bond - now at about 5 1/4%. 


My bottom line advice is to simply shop around. If you're near 
Boston I'll give you the name of my broker. Tt also seems that 
brokers are more direct with the NPNC than banks. My broker - whom 
I've never personally met - never talked charges like that. All 
the 'dickey-shit' fees you described are, IMO just that. Shop 
around, tell the person you talk to that you want a true NPNC with 
none of the d-s. One of them will respond. 

Good luck. 

Howard I. Cohen

If you want to contact me directly, i'm hic@world.std.com




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