Tuesday, May 21, 2013

The Refi That Will Not Die

Do I understand the home mortgage refinance that we finally (finally!) completed? No, I do not. The HUD-1 statement, so beloved as a truth-in-lending document, is gibberish to me. I have run the numbers many different ways and many different times, and I still don't know what we paid for this loan.

Why is a home loan so complicated? Some people tell me it's because the banks deliberately have made this system obtuse. Not just opaque, which means not see-through, but obtuse, which means difficult to comprehend. I agree. I can't understand the pluses and minuses sprinkled throughout this document, and I have tried.

For instance, line 103 is "Settlement charges to borrower," from line 1400. Is that what we're paying for the loan? No. Why not? The total includes amounts that would be in escrow already with our old lender, plus new escrow amounts to be paid to our new lender. The dollar figure also includes an adjusted loan origination charge that is a negative number. Clear as mud? I thought so.

Okay, subtract all the escrow, and is that what we're paying for the loan? Maybe. But then again, maybe not, because our new loan amount is thousands more than the line 103 amount even when all the escrow is subtracted. So we go to line 104, "Payoff of first mortgage." That dollar figure is thousands more than what was owed on that date. But the refi document is paying that amount to the original lender anyway, plus adding a couple thousand dollars to the new loan amount. Okaaay...

We waited to get the refund from the original lender, sure it would clear up everything. It didn't. The original lender refunded our entire escrow balance with them (what would be paid for us in yearly real estate taxes and home insurance). That's great. The old lender also refunded the excess the new lender paid to close out the loan, minus the interest we owed for the number of days that month during which interest had already accrued. That seems straightforward enough, but there was no accompanying statement that broke out those figures, so it took some thought to figure out why the numbers didn't match at all. I got within eight dollars and called it done.

You would think that at this point I would know what we paid for the loan. Subtract the escrow refund, then subtract the remaining refund from the new loan amount, and the difference between the old loan amount and the new loan amount should be what we paid for the loan. But when I do that, the cost of the loan is double what the settlement costs are as listed on the HUD-1. And yet our loan origination charges are listed as a negative number, remember, so where did these other thousands of dollars come from? I do not know. It's pitiful. What am I missing here?

Our first loan statement from our new lender is incomplete. It does not break down the loan payment into principal, interest, and escrow. It also does not list the amount paid at closing to start the escrow account. So I have to either call the new lender again (since I've already called to make sure we have been credited for the escrow amount) and ask for the details, or wait until we receive our second loan payment invoice. Then I should know what the starting figure is on retiring principal and paying interest on this new loan. The purpose of finding this figure is to compare the old loan to the new loan. 

Why do I even want to know the details? Because if I plug in these exact dollar figures in an amortization table available online, I believe I can learn exactly when the remaining balance of the new loan will be equal to the remaining balance of the old loan if it had continued. That could be many months from now, or only a few. Here's the hypothesis as a visual:

The loan in red is the new loan. The loan in blue is the old loan, which started after the last full payment to reduce the old loan, and started at a higher dollar amount. Eventually, the loans will meet, and at that point, the cost of the refi will be amortized and we will start to regain payoff momentum.

But I think I have to wait yet another month for the rest of the information, since the payments made this month have not been credited yet.

Yep. This is the refi that will not die.