Despite the spate of refi-related spam cluttering my e-mail in-box for the past several months, I wasn't intending to refinance my mortgage. I had only 10 years to go on my 1997 refi, and at 7%, the interest rate was pretty good. Besides, most of the spam promises impossibly low interest rates, omitting the incredibly high up-front costs I'd have to pay to get them. Then came a pitch with a difference: I'd actually heard of the lender.
So I surfed over to Priceline.com and decided to call its bluff. True to the Priceline model, Priceline Mortgage lets you name your own rate. I filled out the 10-page application, at the end plugging in 5.875% and 0 points for a 15-year fixed loan, the same as the come-on in the e-mail and on the front page of Priceline's Web site. Five hours later, I was rejected.
I was, however, on a roll, having learned that if ever there was a time to refinance, it is now: Mortgage rates are near a 35-year low. While awaiting Priceline's response, I fiddled with the calculators that most real estate and lending Web sites furnish and discovered the more sophisticated tools at mtgprofessor.com. They allow you to play "what if" games with your mortgage, figuring in such opportunity costs as the interest you lose by taking money from other investments to pay points and closing costs.
By then, I had determined that I should hold out for a 6% rate, max. I also decided to up the mortgage a bit so I could take out $25,000 in cash to pay for some badly needed remodeling, including a new roof for my 63-year-old house in Los Angeles. Sure, I would owe more over the long haul, but a 6% mortgage rate is effectively a 4% loan after you deduct the interest from your income tax. Even with the bigger loan, I would be saving more than $100 a month.
I started shopping for the 6% rate in earnest. I hit the online quote engines at big mortgage banks, Countrywide Credit, Washington Mutual, and my current lender, Bank of America. I asked for quotes from a handful of online-only lenders including E*Trade, Quicken, and E-Loan. I completed the 11-page application at LendingTree, an auction site that promises to solicit four competing bids for my business.
The instant quotes I got applied only to applicants with stellar credit, but they were good enough to narrow the field. They started at 6% and went to 6.5%, with an unexpected result: Despite the common wisdom that online lenders' efficiencies can beat the big banks with their high-cost branch networks, my two lowest quotes came from the brick-and-mortar folks. One online lender, IndyMac Bancorp, gave me its quote along with comparisons to six others--pointing out that both Washington Mutual and Bank of America had better deals that day. (I called, and IndyMac matched the best rate over the phone.)
I ended up with Bank of America. From the beginning, it had come in with the lowest package of the major national lenders by deducting slightly more than a half-point--which resulted in a credit of several hundred dollars toward closing costs--if I filled out an application online. Did I get the cheapest deal? Probably not. I had offers from banks I've never heard of with better rates, and I suspect some of them could also have undercut my closing costs.
But B of A had handled my current mortgage for five years without a screw-up, and we really clicked when we got together by phone. The loan officer learned she was competing to keep my mortgage, not just to get it. I learned what it feels like to be a valued customer. Documentation in writing? Not necessary. Appraisal? Waived. Free checking? No problem.
I signed the final loan papers 12 days later. Maybe I spent an extra quarter-percent, but hey, I got a speedy close and a comfy, satisfied feeling. I figured it was a small price to pay for top-notch service.
By Larry Armstrong
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