It doesn't sound fishy, it makes sense if you are going for a conventional loan...
Most likely because your 'LTV'-Loan to Value is no longer 80/20 with the lower appraisal. So your $248k first loan will be a conventional loan at the 80/20 LTV, and the $12k second will be a second mortgage with a higher interest rate. The additional costs of $400.00 are likely to cover the additional costs of the second loan. You might try and get those down or waived though. Your lender should be able to answer all your questions and should in fact have explained all this to you.
Good luck.

They are trying to have you avoid paying Private Mortgage Insurance (PMI) without telling you that's what they are doing.

If you home is now valued at $310K, and the loan amount is $260K, then your Loan-to-value ratio is 83.87% which means you now need PMI on your loan, or 2 loans to avoid PMI.

PMI is required, to protect the lender against default, on loans where the loan-to-value ratio is greater than 80%.

Your closing costs would have increased because of the new costs in obtaining a second mortgage.

I got an email back from him, and yes it is because of the 80/20 We had no clue about that!! We knew our condo had gone down and figured around the 310 to 315,000 range!! Not trying to say we were ignorant, but had no idea that would matter!! Just figured that as long as we owed on the condo was less than the assessed value we would be fine! And found out the extra $400 was the banks closing cost fee---it wasn't included in the 1st "good faith" estimate!! Were suppose to close this Thursday, so what happens if we decide not to close? what fees will we have to pay? And yes, i will be asking them that!

You don't have to close on the loan, that's up to you.

Did you pay for the appraisal already? Or pay an application fee? Those are the types of costs the lender would try to collect from you.

We haven't had to pay anything up front. On the good faith estimate it does state $350 for appraisal fee, no application fee. Will see how it goes, crunch the #'s to see if it is worthwhile! Just sort of ticks us off this type of situation could arise. We told him, and I'm sure he is aware that the market is down! Time for a coffee,lol Thanks all

the way the current real estate market is going i would not be against going with PMI. I believe it is now tax deductible and since your LTV is close to 80 it should be removed within 2-4 years.

i never liked the idea of having 2 loans because it is already eating into whatever equity i have. i know some people disagree with this stating the tax deduction on a home equity loan is more important, but it is still LOAN.

good luck

Is this a bank you deal with all the time? Most banks have their own in house appraisers, and will have it apraised as low as they can. What are the condo's/houses actually selling for in your area. I too would not like two loans regardless of the reasons, and feel you should have been told this up front. I noticed that you correspond by email--why not person to person. Sorry, I worked in loans too many years, and feel banks and other places should give more customer service. I to am having trouble finding out information about loans (car) no one wants to just give me information without filling out everything and submiting the to never never land.

I don't understand why you're rushing to refinance now in the first place. As I understand it, you just purchased last year and are on a 10/1 ARM. You're new mortgage(s) are going to reduce your interest charges by less than $100/month - which actually nets you even less considering the tax deductibility aspect. How much is the bank charging you to do this? Even if it is limited to only a 1% loan origination fee, that means it would still take you more than two years to break even. By then, you may want to refinance again because I believe that the trend in interest rates over that time period will be down.

The only way that refinancing now makes sense to me is if this was a so-called "no-cost" refi and the closing costs were already built in to the 6.25 rate that you received.

What Bethesda said. you have almost 9 years until your rate resets, no? All this mortgage mess will be over by then. And your condo will most likely have gone back up in value.

Yes, bu tour mortgage is one of those interest only mortgages! We rather have a traditional mortgage and a fixed rate!! This is just too crazy of a world,lol

Our biggest hassle with the process was the communication. We thought the $$ we had to bring to closing (today) would be close to the good faith estimate, just as it was last yr when we bought the condo. BUT the #'s have grown. (we deal with Suntrust, if it matters) They didn't mention that property taxes would have to be paid at closing(even though we pay those on our own) because property taxes are due within two months of closing, ok fine! Then they didn't mention about the interest that had to be paid as well. These interest #'s were not on the good faith estimate!! Luckily we have enough $$ in our chequing acct, normally we keep our savings $$$ in another institution, and it takes 3-4 business days to get the $$$ transfered. We crunched the #'s, and it will take a few yrs to get the closing costs back, but we think it is worth it. Hard to say for sure how long we will be here. I'm currently a RN student and dont graduate until May 2009, so most likely not before that. And I'm sure we could get a better rate than with a 30 yr fixed mortgage, but we have no worries of interest rates sky rocketing, etc etc Thanks All

Just because you have an interest only mortgage does not mean that you cannot pay extra each month, or when you can, towards the principal. An interest only mortgage is not inherently bad. It depends on how you use it to manage your overall finances. How about just setting aside the money you would pay towards closing costs to make extra payments to your principal? You really should run this buy a financial planner. Are you refinancing into a lower rate? If not, I don't think it makes sense, especially if your rate won't reset for another 9 years. It is unlikely that you will even own this home 9 years from now

"Yes, bu tour mortgage is one of those interest only mortgages! We rather have a traditional mortgage and a fixed rate!!"

"We crunched the #'s, and it will take a few yrs to get the closing costs back, but we think it is worth it."

"...worries of interest rates sky rocketing..."

First of all, you do have a fixed rate - - - for 9 more years!

Secondly, as terriks, said, there is nothing inherently wrong with an IO loan and you can always make principal payments whenever you want.

Finally, as I mentioned in my initial response and as you have found out by crunching the numbers, you won't break even on this refi for several years. Consequently, it makes no sense to do this now. The economy is most likely heading into a recession next year. (There's never been a housing down cycle without the overall economy turning downward as well.) The last thing you need to worry about is interest rates "skyrocketing" in the foreseeable future.

Its a done deal!! Were happy with it!! May not make total sense. I guess I'm more of a pessimist, and dont see a bright future in the USA economy, or who knows what another 9/11 would do, thats all I will say on that!! And we were making extra payments each month. Thanks for everything

Pay off the second, you will be real happy.

I know it's too late, but a much easier solution would have been to pay the difference to bring your LTV to under 80%. I bet if you didn't have to pay all those extra closing costs, that money would have covered the 3% that you were over in LTV that forced you to take out the 2nd.

the "closing" costs turned out to be very close to what the good faith estimate was. BUT what they didn't bother to tell us is about the interest we had to pay (interest is paid in re-arrears) nor that the property taxes had to be paid now as well, because the taxes are due within 2 months (dec) This was the first time doing this,and we told the lender that. I believe I even mentioned on the phone,when it came to closing,i will be appearing with a cheque that will be very close to ur good faith estimate, and he said yes! he admitted they dropped the ball and said they were sorry! In the grand schemes of things, it was still the best deal we had been offered. And we will pay off the 2nd mortgage in no time,and the fees for that mortgage were minimal,as he did deduct a bit from his normal charges. After all my blabbing here,it turned out ok, we learned some valuable lessons, and we rather learn them on a smaller mortgage, then later on when I finish school and buy a house. Thanks

Make up the difference so that you will borrow just $248000,
this will eliminate both the pmi and the second mortgage. What's up with the 6.25 rate? 30 years are 5.875 and going down rapidly. Can you drag your heals to lock? This is going to run you 1526.98 a month, P&I. If you write a 20 year at 5.75 it will cost you 1636.69 and save around a 150000 in interest. Something to look at.

We checked over 10 banks, credit unions, lending tree, and what we got at Suntrust was better the best we could get, that included closing costs, but more importantly interest rate. Were in Virginia if that matters. We both had excellent credit rating as well. It's a done deal, and were happy!! So it is what it is,lol

What was your previous interest rate?

6.8% was the former rate. We both like the stability of a 30 yr fixed!! market here in VA is pretty low, so most likely in a few yrs when we move from here to a house, will keep the condo and rent it out.
My mother in law kept sending me links to other financial institutions that had lower rates, BUT when one looked closer, one was buying points, and the closer costs were much higher!! As stated earlier we checked out many institutions! Thanks for the help!

AFG, you probably have already signed your loan documents, but if not, consider asking them if you can get an equity LINE instead of a 2nd mtg/equity loan.

When you pay off a second mortage it is done and gone. But if you got a line and pay off the balance, you are left with a line of credit available to you should you want to remodel the kitchen, or buy a car. Or whatever.

The fed dropped rates again yesterday, which means the rate on a variable equity line is probably less than the 8.125% you have been quoted for your second. The risk with an equity line is that it has a floating rate and if we get back into a rising rate economy, you could end up paying more interest on a line than a loan.

It's a done deal!! No need for a line of equity!! Were fairly happy how it all turned out. learned a lot in the process, which will only help us in the future. Thanks all.

Also, you can get a HELOC later for free if you want/need one.