Is it worth paying more for a bank that actually communicates...

[Steve DellaPelle]

Cash-out refinance on my investment property out of state...

Bank 1 - $150,000 30 Year 4.85% (4.97% APR) $4,000 Closing Costs $46,000 Cash in my pocket after refinance

"Big Bank"

- Horrible communication

- Closing set for end of December, have not heard back from them in 2-3 weeks

- No response to my emails or calls

- Good rates and my current bank so convenient to use

Bank 2 - $153,000 30 Year 5.5% Closing Costs Rolled into Loan $50,000 Cash in my pocket after refinance

Loan Depot

- Communication is much better

- Process is streamlined (They have all underwriters, etc. working for them)

- Less Closing Costs

- Rates are higher

Is it worth going with Loan Depot over the "Big Bank"....aka pay more for the convenience and less of a headache?

[Chris Mason]

Originally posted by @Steve DellaPelle:

Cash-out refinance on my investment property out of state...

Bank 1 - $150,000 30 Year 4.85% (4.97% APR) $4,000 Closing Costs $46,000 Cash in my pocket after refinance

"Big Bank"

- Horrible communication

- Closing set for end of December, have not heard back from them in 2-3 weeks

- No response to my emails or calls

- Good rates and my current bank so convenient to use

Bank 2 - $153,000 30 Year 5.5% Closing Costs Rolled into Loan $50,000 Cash in my pocket after refinance

Loan Depot

- Communication is much better

- Process is streamlined (They have all underwriters, etc. working for them)

- Less Closing Costs

- Rates are higher

Is it worth going with Loan Depot over the "Big Bank"....aka pay more for the convenience and less of a headache?

 It's not actually possible to tell that the good communicator has a higher price, since these are structured differently (Loan Depot appears to have rolled closing costs into your interest rate). I bet if you had LD structure it like BB, or BB structure it like LD, the overwhelming majority - if not all - of that .625% difference would go away. Let me run some quick/guesstimate numbers to restructure LD to be similar to BB.

0.5% to discount points is rougly ballpark 0.125% to rate.

$4k / $150k = 2.6%. As a consumer you would call this 2.6 discount points, a lender would call it 260 basis points.

2.6% / 0.5 discount points = 5.33 increments of 0.125% buydown to rate (or in this case buy "up" to a higher rate with 260 basis points of closing costs covered by the rate). Round down to 5, since rates only come in 0.125% increments. 

5 * 0.125% = 0.625% = as I suspected, approximately the entire difference between the two is due to LD covering ~$4k of your closing costs in the rate. 

Now, that 0.5 discount points per 0.125% to rate is very approximate (sometimes it's 0.3, sometimes it's 0.7, etc), so at the end of the day one may be 0.125% to rate, or so, better than the other, when structured the same. But this is pretty consistent with ~80% of lenders all being in a narrow band of being pretty freaking close in terms of rate these days once each loan offer is structured identically (back in 2006 it might be 0.5% or 1% difference in rate between lenders, not the 0.125% to 0.25% in variance we see today), meaning it comes down to knowledge, communication, responsiveness, etc.

So the answer to "Is it worth paying more for a bank that actually communicates?" is a good news answer: it's not at all clear to me that there's any significant difference in payment between these two lenders (0.25% to rate should never make or break a deal, I think the difference here will end up either 0% or 0.125%), so pick who you want to work with and go with that.