(Hopefully, my experience will give you some ideas when doing your own mortgage refinance.)
AGH! If you hadn't heard, I was driving myself CRAZY a couple months ago with the idea of refinancing our home. My brain would at night disallow sleep due to all the math formulas dancing around. The process has since been completed, my brain has rested, and I can now talk about it.
About a year ago, I set the Rate Watch program on my credit union's mortgage webpage for 4.25%. It would tell me if rates ever dropped that low. I, of course, never thought they would; I was just playing around. This past spring, we got a call from our credit union informing us that 15-year mortgage rates were indeed at 4.25%, sending David and me immediately into a should-we-could-we tailspin. We soon found the catch with low interest rates: they usually mean that house prices are also low. Great if you are buying a house. Not so great if you are trying to refinance a house that already has a mortgage on it.
The new home appraisal would need to come in at 20% over our mortgage balance in order to avoid additional charges. Six years ago, we built this house for $174K. Two years ago, our home was valued around $250K. Of course, we thought getting a high enough appraisal would be easy-peasy.
At the suggestion of the credit union's mortgage rep, I took a look on the MLS to get an idea of the going price for homes in our neighborhood. To say I was shocked would not cover the lengthy speechlessness that followed my discovery. (If you know me in person, you know already I'm not a speechless kind of girl.) All listings in our community were around $200K. And there were a handful of shortsales listed in the 180's. (Yikes!) Our mortgage balance was low enough that we would qualify for the refi, but if our house did not appraise for enough, we'd have to pay private mortgage insurance (PMI).
A few calculations revealed that at our current balance, the appraisal had a 50/50 chance of coming in as enough. The only sure way to know was to do an actual appraisal, costing us about $400. The final decision maker for us was being quoted closing costs of $3,600. Thanks, but no thanks. We put the refi idea to rest. Or so we thought.
Three weeks after our decision, rates dipped another eighth to 4.125%! The temptation was too much. I reset the Rate Watch on my credit union's web page to the pipe dream of 3.75%, so it wouldn't bug me anymore. Or so I thought.
Imagine my surprise in the summer when I received an email notification that rates dropped to 3.75%! WHAT THE FRIJOLE??
OK- whether or not we got the desired appraisal, that was a smoking deal worth going for. We called our credit union. They told us that not only were closing costs now $3700, but that we could not take advantage of the deal because we had locked in an old rate with them during our indecision earlier in the spring. We had to wait 61 days from the date the lock expired. I was so ticked because the mortgage lender never informed us of that stipulation. I went so far as to talk to one of the vice presidents of the credit union who apologetically confirmed this situation.
I called around the county and found a lender willing to match the 3.75% and another willing to go 4% that had a much lower closing cost.
Which one did we choose?