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E-loans, unsolicited lenders arent often best choices for refinance loans
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Beware of e-lenders and unsolicited junk mail from boiler room mortgage lenders bearing gifts of lower mortgage payments.

Rates that have dipped below 4 percent but in the Northern San Joaquin Valley — primarily San Joaquin and Stanislaus counties — that doesn’t necessarily mean if you can qualify to refinance a mortgage with a 5 percent or so annual rate you should do so.

The reason you shouldn’t is a tad complicated by how it impacts the bottom line. It has a lot to do about when you bought your home and significant gains in equity during the past several years.

This last week, homeowners received their annual property reassessments in the mail.

One Manteca homeowner who bought five years ago and has a loan with a 5.15 percent rate with current year tax assessment at $105,000. They paid $110,000 for their home. The assessment for next year’s taxes went up to $115,000.

They bit on an e-loan refi offer and sent $500 for an appraisal. It came back at $185,000. That means they have more than enough equity to refinance at the lower rate. The savings per month was pegged at $90.

But the e-lender factored in the current taxes, not future taxes.

A refinance of a loan is like a sale. It sets a new property value for a home. That meant if the transaction closed on the refi loan before Dec. 31, the assessment basis for taxing purposes for their home would be at $180,000.

Their current tax liability is $1,050 a year. It would go up $750 a year if they refinanced their home. Property tax liability is generally one percent of a home’s assessment. That translates into $62 more a month in taxes. So in reality, the refi would be putting only $28 a month back in their pocket while putting them back where they were five years ago with a 30-year loan.

They would have permanently sacrifice a $62 a month advantage on their tax liability going forward as under Proposition 13 rules, the home as sold five years ago has been restored to its maximum assessment and is subject only to 2 percent annual increases at the max using $115,000 as the basis. But f the refi goes through the tax basis goes to $185,000 moving forward with 2 percent annual maximum increases.

And although the closing costs for the refi are collapsed into the cost of a new loan, by the time tax increases are also factored in they will save very little — if anything — over the course of 30 years in exchange for putting $28 more a month into their pocket today even after the mortgage insurance drops off.

On my home the new assessment has been placed at $127,400. I paid $185,000 for it eight years ago at 5.75 percent. I refinanced it once and am now paying a rate of 4.75 percent. The lowest my property assessment dropped to was $90,000 three years ago.

Based on sales of similar property in my neighborhood, my home would probably appraise at $190,000. It wouldn’t be enough to get rid of the mortgage insurance as the equity compared to the loan balance wouldn’t be high enough.

To reduce my mortgage costs I opted to make weekly payments instead of once a month. Since it wasn’t a new loan and the payments are applied by the lender when four weekly installments are received it works out that I will shave 42 months off the loan. The strategy will save me $35,700 when all is said and done.

The people in the first example have since talked to a mortgage broker locally who is more equipped to look at options that fits a client’s specific needs instead of the several sizes fits all approach e-lenders use. They are pondering the benefit of a FHA streamline loan that could ultimately save them real money.

As for myself, I’m keeping an eye on equity since when it reaches 20 percent of the value of the loan I can have my mortgage insurance dropped saving me $76 a week.

The bottom line is when you are searching out mortgage loans whether for a new loan or to refinance an existing one, mortgage brokers that know the turf and can customize loans to your needs are by far your best bet.