For homeowners who plan to stay put, adjustable-rate mortgages may not be the best way to go. But with interest rates so low, even fixed-rate mortgages are appealingly low at the moment — well under 4 percent. While they have risen a little since the post-Brexit low, as of July 26, the average for a 30-year fixed-rate refinance was 3.45 percent, and 2.74 percent for a 15-year fixed-rate refinance, according to Bankrate.com.
Astrid Hanenkamp, 45, was pleasantly surprised to find that she could do significantly better than the 4 percent fixed-rate mortgage she carried on her two-bedroom co-op in the Hamilton Heights neighborhood of West Harlem. After making a casual inquiry with Jordan Roth, a vice president of Guardhill Financial Corporation in Manhattan, who helped with her purchase loan in 2012, Ms. Hanenkamp, a fashion designer, is planning to close on a refinancing next month with another 30-year mortgage, at a rate of 3.375 percent. Even after taking out a little cash from her equity for a bathroom remodel, she expects her monthly payment to drop from about $1,100 to around $980.
Ms. Hanenkamp said she felt more comfortable sticking with a longer-term loan with a lower monthly payment because she has no plans to move — she married last year and is perfectly happy where she is — and wants the peace of mind of knowing she can cover her mortgage. And in any case, she added, “if I have extra money, I can always apply it to the principal” as an extra payment.
Refinancing a co-op is less expensive than refinancing other kinds of residential property, Mr. Roth pointed out: Because co-ops are not classified as real property, some closing costs like title insurance do not apply. Still, borrowers may be limited in what they can do. “Some co-ops may only allow fixed-rate products, or they may have very tight guidelines when it comes to cash-out and maximum LTVs,” he said, referring to the loan-to-value, or the percentage of the property that is mortgaged.
Another condition specific to New Yorkers: Homeowners may seek an exemption from the state’s hefty mortgage recording tax when refinancing an existing mortgage, since they already paid it once. (Co-op owners do not have to pay the tax at all.) But if they are switching lenders, they must request that the existing lender assign, or transfer, the mortgage to the new lender through what is called a Consolidation, Extension and Modification Agreement (CEMA).
The vast majority of lenders are willing to do that, but some refuse or make it difficult, said John C. Prom, a branch manager for HomeBridge Financial Services, in Manhattan. Because lenders are under no obligation, borrowers occasionally end up paying the tax anyway. And the CEMA process itself entails certain fees, which can vary from lender to lender — from around $500 to about $2,000 — so borrowers should inquire about that up front.
Another thing to consider: Borrowers who are well into a 30-year mortgage should try to shorten the term of the new mortgage when they refinance, if they can afford to do so and plan to stay put, said David Edwards, the president of Heron Wealth, an independent wealth advisory firm in New York. “If you have 20 years left on your 30-year mortgage, and you roll into another 30-year, you’re going to hit retirement still paying,” he said. “Go into a 15-year mortgage and cough up the higher payments now.”
Sanjay Tillu, 52, thought along those lines when refinancing a house he owns as a rental investment in Secaucus, N.J., where he lives in another home with his wife, Manisha Batra, and their 7- and 11-year-old sons. He bought the house in 2004, financing it with a 30-year fixed-rate mortgage at 5.25 percent, then refinancing into a 30-year mortgage at 4.5 percent about five years later. (If it had been his primary residence, he might have gotten a better rate, but lenders typically charge slightly higher rates on investment properties.)
Now, working with Mr. Prom of HomeBridge Financial Services, Mr. Tillu, the chief financial officer for an importer and manufacturer of home goods, is refinancing into a 15-year loan at the far better rate of 3.37 percent. “I may pay $150 to $200 more a month, but because the property is fetching me good revenue, I don’t mind,” said Mr. Tillu, who is hoping to close on the loan in the next week or so. “With John’s help, I’m saving a lot in interest and cutting down the number of years.”
He estimates that it will take him five or six years to cover his closing costs, but that’s fine, he said, because he has no intention of selling.
Homeowners who have been dragging their feet about refinancing still have time to act. Ms. Lantz, of Zillow, predicts that rates will likely stay below 4 percent for the remainder of the year. And according to the most recent consumer credit access survey by the Federal Reserve Bank of New York, the rejection rate on refinance applications has dropped in the last year, indicating that credit is easier to get. However, that trend may be reversing: As of June, 17.3 percent of consumers surveyed said they had been rejected for refinancing at some point in the last year, compared with 9.7 percent in February.
One way or the other, borrowers should be prepared for a rigorous review process. Given the tighter mortgage regulations since the recession and lenders’ fairly conservative underwriting standards, “everything’s much more difficult” than it once was, Mr. Prom said. “The amount of data you need to get people closed is crazy in terms of what’s required.”
Mr. Shnayder, of Citizens Bank, also said that the documentation requirements can go “overboard.” But borrowers can avoid running into problems by seeking out an experienced mortgage professional who will foresee potential pitfalls and work around them, he said.
Mr. Tillu said his lender did require extensive documentation, though he was able to supply it easily in digital format. As for the inconvenience, he regards it as similar to putting up with security checks at the airport. If tighter rules mean a more secure and stable financial system, he said, he’s not going to complain.