Refinance Home Loans – How One Call Saved Us $41,123.16

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I refinanced our first mortgage

It all started when someone on Twitter mentioned the possibility of refinancing home mortgages using the making home affordable program.  I had always assumed because we are upside on our home that it wasn’t possible… well I was wrong.  From start to finish I was able to successfully refinance our 1st home mortgage with little more than a few hours of research and a simple phone call.

This article summarizes the simple steps I took and aims to outline a mortgage refinance strategy you can use.

Our first and second mortgages

To give you an idea of where we are in comparison to where you are, here is our mortgage and home value information.

  • 1st mortgage = $119,000 at 5.875% interest rate
  • 2nd mortgage = $39,700 at 8.8% interest rate
  • Total owed = $158,700
  • Total borrowed = $165,000 three years ago
  • Appraised value at purchase = $175,000
  • Appraised value at present = $120,000 (according to our 1st mortgage lender)

As you can see, according to the present value of our home, we are upside down by nearly $40,000!  The good news is that our first mortgage lender sees the value of our home as enough to repay the amount we owe them.  Therefore our 2nd mortgage lender has much more risk than our 1st mortgage lender.

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Refinance the 1st or 2nd mortgage?

Although refinancing our 2nd mortgage was most attractive to me (because of the higher rate,) I knew our lack of equity would make this option impossible… so I didn’t even try.  Why impossible?  Our home is currently valued at just enough to cover the 1st mortgage.  In the event that we could no longer make our mortgage payments, our 2nd mortgage lender would not be able to recoup any of their investment.  This essentially makes our 2nd mortgage an unsecured loan that cannot be refinanced because no lender in their right mind would touch it.  Even if a lender would, they could not offer us a rate lower than our current 8.8%, so we were better off focusing on refinancing our 1st mortgage.

How did refinancing benefit our home loan?

I’m glad you asked… this if my favorite part to talk about!  Here are the ways refinancing benefited our 1st mortgage situation:

  1. Shorter term – We refinanced from a 30 year fixed (with 27 years remaining) into a 20 year fixed.
  2. Lower interest rate – Our rate before refinancing was 5.875% and our new rate is 5.5%
  3. Zero closing costs, zero points, zero fees – It did not cost us a penny to refinance.  I explored other options with our lender that offered better rates with closing costs, but the option we chose was best for our situation.
  4. Greater principal reduction – Before refinancing we were only reducing mortgage principal by $150 each month.  After refinancing we will be putting $275 toward principal each month which will greatly reduce the interest we pay over the life of the loan.
  5. Interest savings of $41,123.16 – By refinancing into a shorter term and increasing our monthly principal paid we have set ourselves up for massive savings in interest paid over the life of the mortgage.  For those interested, check out our amortization schedules before refinancing and then after refinancing.
  6. Minimal monthly payment increase – Even though refinancing will save us more than $41,000 our monthly mortgage payments only increased by $92, which is a virtually unnoticeable change in our budget.

My wife and I are crazy excited about how much our refinance is saving us… and REALLY want to help you move yourself in the same direction.  It is much easier than you might think, here are the simple steps we took that resulted in such an enormous savings.

CapWest Mortgage refinancing

Right now CapWest Mortgage has excellent deals on refinancing… I highly recommend you check them out.

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Simple Steps to Refinance Mortgages

Step 1:  Does Fannie Mae or Freddie Mac own your loan?

Only loans owned or guaranteed by Fannie Mae or Freddie Mac are eligible for refinancing according to the Making Home Affordable government program.

Use these resources to decipher if Frannie Mae or Freddie Mac own your loan… or you can call and ask your current mortgage lender.

Fannie Mae

Freddie Mac

If either Fannie or Freddie own  your loan then your current mortgage lender most likely has a program set up related to the Making Home Affordable government program.  Make sure you mention this program when you call your lender.

Step 2:  Gather your mortgage information

Here is a list of the information you’ll want to collect before calling your bank:

  • Information about your mortgage, such as your monthly mortgage statements
  • Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
  • Your most recent income tax return.
  • Information about any second mortgage or home equity line of credit on the house.
  • Account balances and minimum monthly payments due on all of your credit cards.
  • Account balances and monthly payments on all of your other debts such as student loans and car loans

Step 3:  Make the call to the mortgage lender

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This is the most critical step because this is where you will make or break your deal.  You can secure a “good” refinance, or you can secure a “better” refinance… it is all up to how you handle this call.

Use these tips when talking to the mortgage lender agent:

Call your existing lender first

By all accounts, you should start with your current lender first because they will be able to give you the best bang for your buck.  To find the contact information for your lender, look on your mortgage statement.

I actually called Capital One 360 first because I would have preferred to move my 1st mortgage to them.  The Capital One 360 rep told me they could only offer me a refinance if I had at least 25% equity in the home, and suggested I contact my current lender… which I did.

Your lenders phone menu will probably have an option for refinancing under the Making Home Affordable program so just follow the prompts.  If they do not then just keep going through the menu until you get a rep on the line.

Do not settle for their first few refinance offers

Know what type of refinance will satisfy you before you call.

You have to remember that the better deal your mortgage lender gives you on a refinance, the more they stand to lose in interest income over the life of the mortgage.  Because of this they will offer you the least attractive options first to try and appease you without giving you the best deal.  Don’t fall for this trick.  Keep chipping away at their offers until you get something that makes sense.

Befriend the mortgage rep

You catch more flies with honey than with vinegar.  Period.  When you talk with the rep make sure you separate the agent from the lending company itself by never referring to them as one in the same.  If you separate them from the company, it is MUCH easier to get them on your side.  Once you have them on your side they will be much more willing to help you find a solution most beneficial to you.

Be willing to walk away

Depending on the lender and the rep you talk to, you may have to be prepared to walk away.  Many times they will not offer you the best deal until you are ready to hang up.  While offering you a decent refinance can hurt their bottom line, having you refinance with a different lender would hurt them even more… and they know this.

Step 4:  Follow through with the paper work

Once you secure the deal with the mortgage lender agent the process is mostly over.  Now you just have to wait for the paper work to get to you.  Keep in mind that they may make the process a little more difficult than necessary… this is possibly another effort to keep you in your current mortgage that will pay them more interest.  Do not become frustrated, just wait patiently and take care of the paper work as it comes.

If you start to loose motivation or you become angry and annoyed with the process, just focus on the amount of money this paper work will save you in the end!

In my case, I was able to save over $41,000 by doing just a few hours of leg work.  I don’t know about you, but I can convince myself to jump through a lot of hoops and maneuver through a lot of red tape for $41,000!

Leave us a comment with your mortgage refinance story

Your story will help others just as mine helped you so be sure to let us know how your experience went by leaving a comment.  Was it easy?  Was it hard?  Do you have any tips for others that I may have glossed over?  Let us know, and Godspeed on your mortgage refinancing efforts!

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1 Arthur @

If possible pay it off in 15 years. Then you free up tons of money for other things, like giving and saving 🙂 My guess is that’s your plan anyway.

2 Matt Jabs

For sure. Once my student loans are gone, the mortgage is next on my “debt hit list.” In all honesty, I hope to have it paid off before 2020.

3 FinanceDad

Good article, I’ll be retweeting here in a min.

4 Money Beagle

I like this but it leaves out what I would consider one key piece of information, and that’s that your current payment must equal 31% or greater of your gross income. Without that, the banks won’t even talk to you. Our payment is right now about 25 percent of our income, so while it sure would be nice to have banks look at refinancing our 5.875% loan, they pretty much laugh in our face. I think that this should be noted as it probably makes this information less helpful for a number of people.

5 Matt Jabs

No such rule applies thanks to the Making Home Affordable program. You need to call your lender back and make mention of this to them.

Our current payment on this mortgage is just under 15% of our NET income and closer to 10% of our gross income.

6 Money Beagle

Interesting, maybe it’s worth a re-visit. My other concerns are that when we purchased our home, we put 20% down (yes, even in the ‘boom’ years) so we avoided PMI and also got escrow waived so we pay our own taxes and insurance. When I looked, the re-finance called for an appraisal that certainly would have had us paying PMI, and I would also anticipate that they may insist on going back to an escrow account. The PMI would be a definite dealbreaker.

7 Bible Money Matters

Under the Making home affordable program, if you didn’t pay PMI before, you won’t be required to under a MHA refinance. You’re in luck! I’d look into it again! (I know this is the case because we refinanced, didn’t pay PMI before, and weren’t required to under refinance even though we were no longer 80/20 LTV)

8 Matt Jabs

Yeah, that should definitely be your main concern. If it were even possible for me to refinance the entire mortgage amounts (both 1st and 2nd) into one mortgage, I would definitely be up the creek w/PMI, etc.

In your situation, everything is riding on the updated appraisal amount.

9 Lakita (PFJourney)

Congrats Matt! You’ve illustrated a great principal! I wonder what the math would have been if you just paid $71 (or even $100) extra WITHOUT the refi?

With your lower interest rate and slight principal increase you’re going to save a significant amount! It’s good to pick up the phone every once and a while and see if a refi will be in your best interest!

I’m cheering with you!

10 Matt Jabs

Great question. If I would have simply paid an extra $71 each month I would have paid it off in May 2029 and would have been charged $93,227.96 in interest.

11 David H.

Matt, cheers to that news. My only question is why you guys elected the 30 year? I know for most people they could only afford to buy if they start with the 30 year because of the low monthly payment, but I know if I can stomach it I plan to start out my mortgage in a 20 year fixed this December when I purchase. There is too much interest to be saved by getting away from that 30 year fixed.

12 Matt Jabs

Are you referencing our mortgage before the refinance? Because we did refinance into the 20 year fixed. The reason we originally entered into a 30 year (back in 2007) was because back then we were “personal finance challenged,” which is a fancy way of saying that we just didn’t think about things like that back then.

13 JoeTaxpayer

We bought our house in 1996, 7.625% 30 year fixed.
Refinanced after a couple years to 6.75% also 30 yr.
As interest rates fell and our cash savings was getting 1%, we decided to refi to a 20 yr at 5.65%, paying enough principal to keep the payment lower than before. The last refinance was to 5.24% 15 yr fixed, and the payment is still below the original amount we were paying after buying the house.
We are paying ahead just enough so the mortgage ends about a year before our daughter enters college.

All the refi’s were no point no closing, so even a .1% was worth my time to go to the bank with the paperwork.

14 Matt Jabs

Awesome. With all the rate increases projected in the not-so-distant future we have more than likely locked in the lowest rates available for quite some time. It feels really good too.

15 Evan

Congrats Matt! I can’t wait to see what this does to your interest payment per month calculations

16 Matt Jabs

Oh, good idea… I didn’t even think about that. It will definitely put the interest paid on a steeper decline.

17 Bible Money Matters

We refinanced under Making Home Affordable program earlier this year. We went from a 6.5% rate to a 5.375% rate, saved $200/month on our payment and saved about $17-20k in interest over the life of the loan. It did cost us about $2000, but that will be paid back in just over a year via the lower payments. I kind of wish we had refinanced into a 20 year, but we wanted the flexibility of the lower payment at the time. We’ll end up making some extra mortgage payments though and hopefully pay it off years early.

18 Matt Jabs

Plus you can always pay double principal every month and pay it off in 15. 🙂

19 Rebecca

Hey Matt – I’m so happy for you!

I’m a personal finance junkie (and loyal follower of your blog), but for my day job I work for a mortgage company.

I just wanted to point out that there’s more than one way to skin this cat…you were in a good position to bargain for your refinance, not having any lates. Therefore, you qualified for a refinance under the Making Home Affordable plan where a homeowner can have a mortgage debt of up to 125% of their home value and still qualify for a refinance under government guidelines (for fannie mae- and freddie mac-insured loans). In your case, if your current servicer hadn’t been willing to help, you also had the option to refinance with other lenders that are approved to offer Making Home Affordable refinance options.

Another part of the Making Home Affordable plan is the loan modification. People who’ve been late with their payments or may be facing foreclosure are the proper candidates for this program. In this case, ONLY the current servicer can help the mortgage holder. The onus is alos on the mortgage holder to prove hardship through a stringent application process (this may have been root of Money Beagle’s impression that he needed to be over 31% of income-to-mortgage-payment). In the modification plan, the current servicer of the loan is incentivized (for instance, the government shoulders some of the principal write-down) to help loan holders right-size their mortgage and bring payments to manageable levels. But they are not required to modify.

If this is the case for any of your readers, they should be contacting their servicer for help. Naturally it is in the bank’s best interest to keep their clients from foreclosing. But a homeowner may have less bargaining power in this case, as they are limited only to their servicer for modification options. Certainly they can bargain or not accept the first offer they are given, but they cannot take their business elsewhere. The bargaining chip would be the threat to foreclose.

Just a little insider information for your readers: the government has realized that the loan modification process is not happening as fast as it should, as big banks just don’t have the infrastructure to process modifications efficiently. Steps are being taken in the industry to try to expedite modifications, so look for new developments in that area.

Until later!

20 Matt Jabs

Excellent information Rebecca… thank you for all the insider love. I’m really diggin’ on the MHA program because it finally gives some options to homeowners who are current on their payments.

21 Jason @ Redeeming Riches

Way to go Matt! I’ve never refinanced, but we did just move into our new place in January and locked in at 4.875% – I was pumped to get a 30 that low!

22 Matt Jabs

Awesome rate Jason. Did you put money down… what percentage?

23 Mrs. Money

Wow, that’s awesome!! Great job, Matt.

24 Adam

So did you actually use the Making Home Affordable program or did you just get lucky and your bank let you refinance? I listen to Dave Ramsey every day and I think he has had one person call in that actually got refinanced. I just find it weird that you refinanced and others are having trouble. Maybe it’s just because you followed through?

25 Bible Money Matters

I refinanced under the Making Home Affordable program, although it took a long time. I think you have to find the right person at the bank, otherwise you’ll end up going through phone bank customer service hell. The banks don’t seem to have the staff trained as well as they should be to be able to handle the program. Until I found the right person at BOA I was being told we didn’t qualify, that the provisions excluded us, etc. Once I found the contact of someone who knew what they were talking about at the bank my refinance went through with no hitches.

26 Matt Jabs

The only reason I could refinance my first is because of this program. If it wasn’t for MHA they wouldn’t have entertained the notion. The lender rep I worked with was an MHA refi rep.

27 Adam

That’s awesome that it worked for you. I recommend you call Ramsey and get on the show. I would bet about $500 on the fact that he would get you on the air to tell your story. Talk about some PR!

28 Rebecca

Hey Adam, check out my comment above.

There are two parts to MHA – one is to refi up to 125% of your homes value (so if you are underwater by more than this, the banks can’t help), the other is to modify your loan (reserved for those who are in immeninet danger of foreclosure).

You are correct in your impression that people are having trouble getting in on this deal. The government is actually actively trying to help banks to streamline the MHA refi and mod process, as apparently many big banks have proven to be ill-equipped to handle requests from consumers. I’ve been privvy to some pilot programs that are in infancy stages that are designed to help larger banks streamline the process. Hopefully, within a few months, some of these supports will be widely avaiable.

29 Brian

Nice article, I have been promoting Obama’s stimulus package for quite a while now. With average monthly savings of $500 being quoted in the official press releases for the Home Affordable Modification Program, people would be crazy to at least not check out the details to see if they are eligible. Its good to see someone writing about having managed to refinance successfully and saying exactly how they did it so others can do the same.

30 Matt Jabs

I didn’t save on my monthly payment… I have no interest in that. I’m concerned with total interest paid over the life of the loan. My monthly payment actually increased by $92… but the amount toward principal increased by $125/month – and that is the winning number (that and the .4% lower rate.)

31 Forest

That is awesome news 🙂

There is a saying “Assumptions are the mother of all foul ups”… Not sure if it’s an English saying and not saying you screwed up but it’s a good lesson on assuming things….. Yay for Twitter for getting the cogs rolling in your brain and you investigating.

I don’t have a mortgage to refinance right now and save $40k sadly!!!

32 Matt Jabs

Well, my cogs are always turning for ways to save – I just didn’t know it possible for me to refinance… and am SO glad I looked into this program.

33 Ryan

Amazing savings! I’ve looked into refinancing but my wife and I will probably move to a larger home in the near future, so it wouldn’t save us much money in the long run. But I will definitely keep my options open about this in the future!

34 Matt Jabs

Yeah, if you were to refinance in the short term it would have to be a zero closing cost refi.

Are you paying cash for your next home? If not, maybe a shorter term mortgage and more $ down?

35 Jennifer

Can you refinance if your loan isn’t through Fannie Mae or Freddie Mac? I’m slightly confused. We have a 1st and 2nd. Our 1st is through M&I Bank and our 2nd is through National City Bank.

I read above that through the MHA program it had to be with 2 of the above lenders, but then someone else commented that you just needed to refi through an MHA approved lender. How do you find one?

We had our house appraised at the end of 2009 and were told by Huntington Bank that it wasn’t worth enough to refinance and we just gave up.

Please help! Have a blessed night!

36 Matt Jabs

What up Jenn. You can refi if not thru F or F, but if you’re upside down then will be your only chance. As long as M&I and/or NC offer MHA refi’s, you should be good to go… just give them a call. They’re not going to advertise it… my bank didn’t either, I just king of stumbled upon it.

If you’re unsure whether F or F own your loan, go to this website to find out.

Don’t give up… check into the MHA program for your situation – I was totally surprised by the fact that I was able to refi and save so much money over the life of the loan.

37 Victorino

Hi Matt,
That’s a great job! Thank you for sharing those details and steps to us.
I’m still in my process of researching on how to save money on refinancing our home mortgages. The interest savings you have just gained is a nice one.

38 H Lee D

We are eligible, so I just called and talked to someone (BOA).

The problem is that we can’t afford the monthly payment to go up (it’s gone up $200 in the last few months because of taxes – how the value can decrease $130K and the taxes go up is beyond me). So they’ll give us a 20- 25- or 30-year fixed, but there are closing costs, so I’m not convinced it’s a good deal. I need to take the numbers and figure it all out (amortization schedule) and see. Is there a website that can help with that?

We’re currently in a 30-year fixed at 5.85%, which isn’t bad. We’re right at the break-even point (if our value hasn’t decreased in the last 6 months), so we’re not upside down but we have no equity. I’d like to save a little money both short-term AND long term if possible 🙂

Still thinking this all through.

FWIW – I got a letter from BOA saying we were eligible.

39 Matt Jabs

This is good news. The only way for you to save money both long term and short term is to have refi into another 30 year fixed at a lower rate with no closing costs. While this might sound good now, I would encourage you to shorten your term to 15, 20, or 25 years. Doing so will save you a ton in the long term and will cost minimally in the short term. For me a refinance into a 20 year only cost us an extra $92/month. While this may sound like a lot to some, many people spend more than that on cable TV. That small monthly amount will save me $41,000 over the next 20 years… that is an incredible savings.

As far as your taxes go, you can appeal the tax amounts… call your municipal taxing authority (city, township, etc.) and see about appealing the amount. If you’re going to do an appeal it is a good idea to get an appraisal done first… so you have a concrete value to base your argument on.


40 H Lee D

OK, I just finished talking to a less-than-personable man on the phone.

He offered us a 30-year fixed with an interest rate half a point lower than what we’re currently paying. Monthly payment smaller. I asked him about life-of-the-loan interest, and he told me we’d save tens of thousands of dollars over the life of the loan. When I asked for specifics, he said I could look it up online. Thank you, I will do that and call you back.

I looked up the two amortizations – our current and the proposed. Unlike the “tens of thousands” he promised we’d save, we would actually pay an extra $16K (roughly) over the long term. If we hadn’t been paying for several years already, that wouldn’t be true, but we have been, so it is.

But before our conversation ended, I asked about getting rid of closing costs. He said that no one does that anywhere ever. I mentioned that you (“a friend”) had done it, and he said that if you look at your HUD sheet, there are closing costs. I haven’t seen your HUD, so I didn’t argue. (Can you help me out with that?)

The 15-year would add about $300/month onto our payment, and we really can’t swing that. The 20-year had almost $6K in closing costs, which I just have a big problem with.

I called back and left a message and said thanks anyway.

I will probably call and speak to his supervisor on Monday, since he flat-out lied about the long-term financial outcome. Saving 10s of thousands and paying an extra 16K are two very different things.

41 Matt Jabs

Who is your bank? If it’s Wells Fargo I have a contact you could probably try. Anyway… regarding my HUD sheet – there were closing costs of $718.09, but then they simply applied a credit of $719.08 to negate it, bringing my closing costs (on the HUD sheet) to $0.00.

Definitely call back and try another rep. How many years are left on your current mortgage? If it is any less then 20 (we had 27) I would tell them you want to go with a 20 year refinance with a lower rate. That was by far the best deal (and situation) for us.

42 H Lee D

Thanks. We’re at Bank of America. This isn’t the guy who I talked to a week ago, but he hasn’t been returning my calls.

We have 26 years left on our mortgage. (And looking at the amortization, if we stick to the current plan, we owe more in INTEREST than our house is worth right now. How depressing is that???)

I’ll try again and let you know. Thanks for your help.

43 Matt Jabs

Yep… we’re in the same boat – definitely sucks, but such is life. Keep us posted.

44 H Lee D

Well, after the 3rd representative I talked to said we weren’t eligible at all, I gave up. Yesterday, on a call for unrelated items, the operator asked if I’d like to talk to someone about refinancing with Make Housing Affordable. Sure. Why not?

We can get a 25-year fixed at 4.875 if we buy a point, so there are about $4500 in expenses wrapped in. (We just paid off the car 2 years early — hooray! — so we don’t have cash on hand to just pay that $4500 or we would.)

Even still, we’re saving interest long-term *and* lowering the monthly payment, so unless I’m missing something, it looks like win-win. I called and left a message today and will call again tomorrow if I don’t hear from him in the morning.

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46 Traci

My situation:

I rent my condo – with a $500 loss every month (including HOA).
Other than the condo and student loans, I have no debt and have never been late on paying the mortgage. I have two loans, the first is backed by Freddie Mac and the second is owned by BoA. I want to refinance my first loan to ease up on my monthly expenses. Am I qualified to participate in the MHA program?

I just spoke with the same BoA broker that helped me purchase my home four years ago. He started off by saying that I qualified for a MHA refinance, with minimal closing costs and a $35 application fee. I said, great – let’s do it. Then he called back and said that Freddie Mac doesn’t recognize the program. BUT if I am reading this blog correctly, FM does support the program so, did he lie to me? Any suggestions as to what I should do next?

I read another blog before this one and it mentioned that FM doesn’t do refinances for condos – is that true?

My first loan is backed by Freddie Mac. I called BoA and spoke to the same broker that helped me buy my house.

47 Retired Teacher

Matt, I have a first mortgage (BOA (FreddieMac) @6.625% and a 2nd (GMAC) @8.2%, My effort to combine them into one has become futile. My personal banker (loan officer) said I would qualify for the HARP and to contact BOA which I did and they said I don’t qualify as my second mortgage “isn’t with them”…something about changes made to the Affordable Home Act two months ago. Didn’t qualify for the modification part either…so what is next for me. I sure would like to refinance at least my first mortgage to something less. I guess I’m stuck with the 2nd mortgage. Advice where to go next? I went through 6 “different specialists phone desks” with BOA today!

48 Matt Jabs

I would consult an independent mortgage broker so he can help you find a bank that will refinance your mortgage. I’m willing to bet you will find success if you work this advice.

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