Quicken Or Local Lender to Refinance?

Question

Hello Wonderful People of BP,

I am looking to consolidate the loans on my primary home and would like some advice on how to go about it.

A little backstory: I am currently house hacking a SFH, renting out 4 bedrooms. I intially acquired the home for $490,000 and was advised by my realtor to do a 80/10/10 piggyback loan. This was my very first home purchase (and before I found BiggerPockets) so I took her advice because she, herself, was a seasoned real estate investor. She has been in business for 20 years and seemed to know what she was talking about. The idea was to eliminate PMI on the first mortgage because it was at 80% LTV.

I financed the home purchase price by doing 80% with a 30yr conventional at 3.99%, 10% with a second mortgage at 6.5%, and 10% cash downpayment. The second mortgage is 20yrs ammortized, with a 7 yr balloon. I've had this house for about 2 years. The total monthly mortgage payment for both is $2600 (P+I+escrow) and I get around $3300 from rental income. It's not a bad house hack, but something about the piggyback loan always bugged me and I did not know exactly what...

Current Situation: After listening to BiggerPockets podcasts, I realized that no one ever talks about using a piggyback loan. And after doing my own math, I would have saved $50/month by just financing 90% of the deal in the first place! My agent's advise was bunk, and I was too dumb to realize it.

I've been shopping around for the last month to see if I could consolidate these two mortgages into one. I am in the final stages of a refi with Quicken and all that's left is to sign on the dotted line at closing. Both balances will be conslidated into what they call a "hybrid loan". It's 30yr amortized, fixed at 3.99% for the first 10 yrs and adjusted rate after that. Loan amount of $435,000. To me, this sounds like a fair deal because I am maintaining the rate on my first mortgage, eliminating the high 6.5% rate mortgage, and I don't plan to keep the house for more than 10 years. My new monthly payment would go from $2600 down to $2433.

However, the net closing costs seem pretty high at $10,000 and makes me feel uncomfortable tacking that balance onto my existing amount and basically eliminate a year worth of loan pay down. Also, a savings of $157/month is not very much compared to $10,000 in costs. That's over 5 years to break even.

I got a quote from AmeriSave. They would do the exact same loan, but with $6000 in closing costs. They're just not as reputable.

So, what would you do in this situation? It seems like a lot of investors recommend going around to local credit unions or community banks. What kind of closing costs should I be expecting?

Thanks in advance,

Quoc

Russ Draper · Answer

Most local brokers are going to sell the loan anyway, so going with AmeriSave vs a local bank wouldn't matter much to me.  What matters is can they close the loan for you.  What was in the $10k closing costs vs $6k closing costs?  They should have sent you a GFE listing each item so you could compare.

Josh Engelhart · Answer

@Quoc Tran If the property is going to be out of the portfolio within 5 years you probably want to skip refinancing entirely entirely. Your $6,000 cost to save $157 per month has a 38 month payback. If you are out of that property in less than 3 years you are going to lose money on the refi. Even if you keep it the full 5 years the savings are marginal and refinancing is a pain in the butt.

Your other option would be to take an even higher rate than what Amerisave is quoting right now that will have premium pricing. I max out at 2.5 points back. Meaning on your $435k loan if you take the highest rate available you could get a credit back of up to $10,875. This would cover any and all lender fees, title, appraisal, etc. There would be no loan cost or increase in loan size, but with the higher rate your monthly savings would decrease or go away completely.

Yeng Hawj · Answer

I've been wanting to do a refi on my primary as well but keep hesitating because I don't know which route to take.  I thought about using 'Cash Call' because one of my coworkers used them without any issues.  I'll be interested to see what others have to say.

Quoc Tran · Answer

@Russ Draper The $4k difference seems to be in the origination fees and points paid to lower the interest rate. AmeriSave quoted that they do not require these fees.

@Tyler Delbert Yes, Tyler. I have received initial disclosures from AmeriSave, which show that they do not charge such hefty fees.

@Josh Engelhart Thanks for your input. I'm thinking this property will not stay in my portfolio for the long term (less than 5 years). Looks like I should go find some local lenders or go with AmeriSave. I'm better off forfeiting my $500 deposit than sign on another $10k of debt.

Josh Engelhart · Answer

Quicken is never going to be your cheapest option. People suggest local banks and credit unions due to their flexibility, but they aren't usually the cheapest either. I would do a search on bankrate.com and call the lenders who look the cheapest. When shopping mortgage lenders all you need to compare is your interest rate and the lender fees which are listed in box a on your loan estimate.

All of your other closing costs come from third parties. On refinances the lender normally steers you to their preferred title company, but you can pick your own.

If you are going to keep the loan for a long time a lower rate with higher fees can be worthwhile. If you may sell or refinance again in the next few years you are better off taking a higher rate with no lender fees.

Tyler Delbert · Answer

@Quoc Tran, go with your local broker. There’s no reason to pay an additional $4,000 in fees. Quicken typically always inflates their fees and they charge a hefty loan origination fee as well.

Have you received initial disclosures from AmeriSave or was that just their verbal quote?

Quicken Or Local Lender to Refinance?

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