Friday, July 4, 2008

Refinancing an adjustable rate mortgage

It's been an interesting few weeks. A bit scary, which among other things accounted for lack of posts.

Yes, we were amongst those that got a sub-prime adjustable rate mortgage two years ago. The rate was scheduled to go up on July 1, 2008. Two years ago that seemed really far away, and with the prices of housing going up so dramatically at the time, we would actually have some equity by the time July 1, 2008 came around.

The housing market went a little up after we bought the house and then came down with a thundering crash. May 2008 arrived, and we had to either pay the higher interest rate as of July 1, or try to re-finance. We received notice that our interest rate was about to go up to 8.5%, which would not have been an unsurmountable raise in monthly payments, but we'd rather not have to fall back on that option.

Over the past 2 years a lot about our situation has changed. We've worked very hard to keep our credit noses clean. Our income situation has improved some, becoming more stable and predictable. That helped. Our credit scores were more than 100 points higher than 2 years ago.

The main problems we were facing were:
The loan-to-value ratio was rather high, because our house did not go up in value as much as we had predicted. And of course, there's this pesky little thing of neither P1 nor I being US citizens or green card holders, and many loan programs required one of those.

On the bright side, since we went through the mortgage process 2 years ago, we had some experience, and we shopped around quite aggressively for low rates and lenders that would accept our immigration status. Also, we have invested a lot in the house over the past 2 years. Both actions paid off for us.

Our house appraised at a value high enough for us to qualify, the home improvements were assessed at $9,000, and without that we would not have qualified. We closed on our refinancing last Friday with a 6% interest rate, which was the best of 6 offers we received. There were other offers for the same rate, but with higher closing costs.

It's nerve wrecking though, even after the closing. The closing agent sits on the money for 3 business days (in our case, add the weekend to that), before they dispatch the funds (you know, just in case we change our minds). Then they dropped it off in the mail, and it took our previous lender a full 24 hours to process the payment once they received it. But I just checked, and it's been paid off!! Yeeehaw!!

I think in many ways, we are a success story. We bought the house a year and a half after we declared bankruptcy with a sub-prime adjustable rate mortgage. We worked on improving our financial situation and carefully managed what we had. We improved our home, and shopped around for a mortgage. We successfully refinanced a less than perfect mortgage that allowed us to buy a home when we otherwise would not have been able to. And now we have the home we wanted, a much better fixed rate, and a regular 30 year mortgage.

So here we are: homeowners with a regular old mortgage. The bank that owns our house right now cannot increase our rates. We are very pleased!

5 comments:

EcoGeoFemme said...

Congratulations!

makita said...

Thank you!

knobody said...

wow, your sub-prime mortgage would have gone up to 8%? our fha special first time buyer's rate was 8.25%, and that was a good rate at the time. good riddance.

grats on finally getting the refi done. time for coffee!

CAE said...

Congratulations - must be a huge weight off your minds!

makita said...

Hi knobody,
Yeah, I realize we're pretty spoiled now with our 6% rate, but you also know that when you got your house, the prize was, what, 1/3 of what my house is right now? Yes to coffee! But when, oh when, I've been working nights recently to try and catch up.

Hi CAE,
Yes, indeed, it is a huge weight off our minds. Imaging having to watch you interest rate increase every 6 months and being powerless to stop it, or to pay it (which eventually would have happened).