I am going to be working under a similar arrangement. It is my understanding that it will be a refinance because you are basically refinancing a lien that is on your property. In my case, it is a construction loan through a bank but in the builder's name since the rate is so much lower and the bank will take a lien against the property. I will be interested in how this works out for you. A few lenders that I have talked to seemed to be confused by this but my reading of the Fannie Mae rules shows it to be a refi. It may also depend on how long you've own your lot.

When I had my home built I had a construction loan. Once the house was done, the same lender rewrote the loan into a mortgage loan. There were some expenses to have that done(maybe bought a point or some other things). Once I had done that, I had what was called an indemnifying loan, which could be rewritten whenever the interested dropped (it was a fixed rate loan), and there was no charge. I had them write it up as 2 loans. One was for a term of ten (maybe 15...its been a while) years, and the other was for 5 years. The 5 year loan had the better interest rate, so I had it written so that I would be making the biggest payment I could comfortably and reasonably afford. I think I had them rewritten once or twice after that due to the interest dropping, though I never had my payment lowered. It just caused me to have them both payed off earlier. You might ask about information on an indemnifying loan, if you have refinance with the current lender. Sue

We just finished doing this and encountered the same problem. In our case the bank (a small credit union) was willing to expand the area from which they drew the comps to pick up enough....but for us that meant that the house appraised well below even our worst case scenario since expanding that boundary picked up the edge of a neighborhood on the other side of the freeway that's been very badly hit by the downturn. (Of course when we asked the *county* to redo their appraisal in light of this, they rightly pointed out that the comps the bank used weren't actually in our neighborhood, and based on the one comp that was, the value of our house was substantially higher than its appraisal, and we would be taxed accordingly....figures! ;) We were fortunate to have enough equity in the house that we were able to move forward anyway by paying a small amount to keep the LTV at 80%, but it was definitely frustrating. Since we plan to stay in the house whatever happens to the value and we were bringing the interest rate down 1.25 percent which yielded pretty sizable savings in our monthly costs, it still seemed a worthwhile investment. (Also, there were a lot of sunk costs involved since we didn't get the appraisal figure till after we'd paid most of the fees....nonrefundable of course!) I don't think the bank would have accepted older comps, though, given the current trends.

Hi Mike, I GUESS we're financially independent; we've accumulated a healthy retirement fund and contribute $1200 to it monthly. We have a $25,000 rainy day fund and increase it monthly. We have no vehicle loans, no credit card debt. The house is worth about $525-550,000. That doesn't fit the definition of financial independence. QUESTION: Do you now recieve (or could you now receive) enough after-tax cashflow income from your retirement accounts, without withdrawing principal, to pay for all your current and future anticipated expenses? IOW, can you stop all employment immediately and live in the lifestyle of your choice on your investment yield alone? If yes; CONGRATULATIONS, you have reached financial independence. If NO... A) don't quit that day job, and more importantly, B) don't burn your growth money in non-growth directions. I guess my question is, why not go for the 15-year to get the lower rate, since the basic monthly payment will remain the same ($2077 vs the current $2055)? Because focusing on the payment as the primary determinant is distracting you from the much more critical issues in your financial life. Again; The wiser outcome (for responsible people) is NOT to try to eliminate your mortgage a little snip at a time, but to accumulate a SINGLE LIQUID ACCOUNT big enough to completely pay off the mortgage all at once... and AVOID sending a single dime to the mortgage that you could have otherwise sent into the growth account. If you do the math (or work with a knowledgable advisor who can do it for you) you will see that you will eliminate your mortgage as a liability faster this way, safer this way, and with far less uncertainties. ================================= Hi Joanne, Dave, are you saying that Mike should not refinance at all, or that he should not pay the extra $1,000/month? No.... Assuming Mike is mature & responsible with his money, the most conservative plan would be to refinance at 80% of the value (or more, if hte existing balance is more) using a 30 year term (unless a 40 year term is available at the same rate.) If he is statistically likely to stay put longer than 6-8 years, he would be wisely advised to buy the interest rate down at the point of rate lock to the lowest rate he can which will lock in enough interest savings to recoup the up front points by the 5th year. That will likely drive his total monthly mortgage payments down (even lower than his current $2,055,) and then all of the payment savings and every dollar of additional discretionary cashflows ought to go into a "cascade of buckets" (meaning a hierarchy of funded accounts, starting with immediate cash reserves, annual reserves, major repair reserves, and then longterm insured tax-advantaged growth accounts.) Further, it is *likely* that once he has his reserves properly funded he will also be able to adjust his various insurance coverages to reduce his premiums. Because of the safety reserves he will be able to increase his deductibles, increase his co-pays, and extend elimination periods. All these savings flow right into his longterm growth funds, which establish a self-climbing UPWARD spiral of funds for a change. but if it's a true no-cost refi (i.e., it's not just that the costs are rolled into the mortgage), then what's the downside? If your finances are poorly structured, and you replace the structure with an identical financial structure but merely drop the rate (all for "free") you are still left with an inefficient structure. GIGO. Most people lose much more money from financial leaks & inadvertant monetary giveaways due to not understanding amortization, taxes & insurance premiums than they can ever gain in a lifetime by increasing their investments by a percentage nor from decreasing their mortgage by a percentage. IOW... most people are trying to sail a boat full of holes across the ocean... and their best idea of a solution is a bigger horsepower engine. Yes, it will make a difference... but plugging the leaks & eliminating the barnacles will do it much faster, safer & more certain. Cheers, Dave Donhoff Leverage Planner