Refinance category archives

Reverse Mortgages is a unique loan available to those 62 and older. It allows the homeowner to take part of the their equity in their home and turn it into income with out selling, giving up title, or taking on monthly mortgage payments

• Seniors will never have to leave their home as long as taxes and insurance payments are made and the home is kept in reasonable condition
• No income qualifications
• No credit score requirements
• No monthly mortgage payments required
• No repayment of the loan until the last borrower moves out permanently or passes away
• Proceeds paid in lump sum, monthly payments, line of credit or any combination
• Independent consumer counseling required

To find out about all the options available to you or a family member, contact a reverse mortgage specialist that you trust.

With home values sliding all around us, there’s a good, timely question in Zillow Advice from chacha99:

What do you do when the value of your house decreases and you want to refinance?

Two confirmed lenders from Zillow Mortgage Marketplace have already provided valuable answers (thanks Sean Ogilvie, and Dave Vance).

Are you in the same boat? Learn more about refinancing.

Understanding Adjustable Rate Mortgages Part I

In this three-part series, I will discuss what to look for in an adjustable rate mortgage (ARM).  I will talk specifically about fixed-to-adjustable rate mortgages such as 3/1 or 5/1 adjustable rate loans. 

Many consumers view ARMs as risky or dangerous loans.  There is no question that these mortgages come with more coherent risk than a fixed mortgage, but they can often be useful for the right consumer in the right situation.  Truly understanding these loans is the first step.

First, let’s cover why people shop for these loans and discuss how they can be beneficial.

Here are some basic questions you should ask yourself before looking for an ARM:

1. Do I know how long I will keep this loan or property?
2. Will I be able to budget for a fluctuating payment once the rate begins to adjust?
3. Is the risk of an adjusting rate/payment worth the savings of an initial, low interest rate for my goals?

If you answered “Yes” to some or all of these questions, it’s worth exploring an adjustable rate loan to see if it fits your goals.

ARMs have a fixed rate for a period of time, and then the rate is adjusted according to the index a particular loan is based on.  When shopping for an ARM, it’s important to first consider the length of the fixed period.  ARMs often have fixed periods of 2, 3, 5, 7 or 10 years before they adjust.  This initial rate is the first number displayed in the name, while the second number represents how often the rate will adjust after the initial fixed period.   For example, if you have a 3/1 ARM, your rate will be fixed for 3 years.  After the third year, the rate will adjust once and stay the same for the next year.  To minimize risk, pick a term that coincides with how long you plan to keep the loan.  If you have a property you plan on selling in the next 3-4 years, you may want to shop for a 5/1 ARM.  If you plan on selling your property between 5-6 years, you may want a 7/1 ARM.  

I usually recommend clients to take a slightly longer fixed period than their planned timeframe for the loan, just to be prepared for unexpected delays.  That said, be prepared to pay a higher rate for a longer period of time.  Most ARMs will have a lower rate for shorter fixed periods and a higher rate for longer fixed periods.

Link to Understanding Adjustable Rate Mortgages Part II

Link to Understanding Adjustable Rate Mortgages Part III

I for the life of me cannot understand why the Government or Consumers care about YSP (yield spread premium) or broker compensation!

The Challenge—-Can anyone name a product or service that the consumer buys based on the profit margin and not the cost to them?

Why Consumers get hung up on what the par price is or what the YSP or SRP just baffles me!

Knowing what the profit margin is, may help you negotiate better with a loan officer that is trying to take advantage of you.  I would bet most if not all good loan officers know what they charge and the rates and terms they offer will change not based on how much they can get from an unsuspecting borrower, but by how the market moves. A loan officer that is willing to negotiate is a loan officer you want to avoid!

Personally I would be wary of any lender or broker that tries to Spin the compensation positively or negatively in order to convince you to choose to work with them. Cost and service will vary between lenders….What you the consumer value most will vary so the lender/broker you choose will be different based on what you value most.

Yeah, thought that might get your attention.  Let me clarify the headline.

Of course it matters how much you pay for something, but it doesn’t matter by itself.  It only matters in the context of the entire deal.  Let me use an example to show you what I mean.

Suppose you were offered a piece of real estate, on which the cost was $5 million.  Sound like a lot?  Yeah, and if the property was 4 swampy acres in Mississippi, you’d be correct that that was a hefty price tag.  On the other hand, if the offered property was, say, 20 acres of lower Manhattan - did you know that the World Trade Center footprint was exactly one acre? - you might reconsider.  That would be a pretty good deal.  The price tag, in other words, has no meaning by itself, outside the context of what the price is attached to.

I had a client recently tell me that there was no way he was going to pay more than $4000 for closing costs on his loan of $390,000.  I asked him what the significance of that number was.  He said that $4k was just a huge price to pay for a refinance, and he didn’t want to pay any more.  So I asked him a question: if he were saving $1000/mo on his payment, would he be willing to pay more than $4000 for the deal?

Turned out, he was.  Fascinating.

We had a lengthy conversation then about the tradeoff between costs and benefits, and he finally understood that what mattered was not how much the loan cost, but how fast the refinance paid for itself.  If it paid for itself in 6 months, that was a screaming deal.  If it took 6 years, that was not.  For each borrower that calculus is different, which is why good loan officers make refinance deals in terms of repayment times, not just interest rates and costs.

When you go to refinance, don’t just ask for the Good Faith Estimate.  Ask for a cost-benefit analysis.  You’re going to be investing your equity (or your cash) in the deal, and as with any investment, it’s a good idea to know what the returns are going to be.  Refinances are great investments, most of the time.  You can see annual returns of 40-60%, or even more sometimes, guaranteed, tax-free.  Try that with a mutual fund.  But you should absolutely know what that return is before you make the investment.

So ask.

Cj

If you are one of many Americans who took out an ARM loan a few years ago, you would think from reading many reports that your rate will skyrocket come the first adjustment period. I suggest you do some research on your Adjustable Rate Mortgage terms before sounding the panic alarm.  The first things you will want to find out are:  your Index, your Margin, and your Caps.

Index: The index in which you have an adjustable rate mortgage plays a large part in how your rate can adjust, as the yield or interest rate is added to the margin to determine your new rate, subject to any Caps in place.  Many mortgages have an index based on the 1 Year Treasury Bill, LIBOR(London Interbank Daily Offered Rate), or the COFI(Cost of Funds Index).  The MTA is the Monthly Treasury Average over a given timeframe.

Here are the yields of many Market Indices as of 7/7/2009:
Prime:   3.250%
1 Yr Libor 1.511%
1 Yr T-Bill 0.490%
1 Mth COFI 4.244%
1 Mth MTA  4.788%
6 Mth LIBOR 1.023%
1 Mth LIBOR 0.302%

Margin: The margin is a percentage that is added to your Index to determine your fully indexed rate.  Many Prime ARM loans have margins ranging from 2.25% to 3.5%.  Unfortunately, there are Subprime ARM loans with margins ranging from 4.25% to 9.25% or more.  The ARM loans with high margins are the “toxic” ARM loans you read and hear about in the news all the time, because the loans adjust upward to the maximum of the caps each adjustment.

Caps: Caps refer to the maximum amount your new rate can adjust in a given period.  Usually there is a First Adjustment Cap, a Subsequent Adjustment Period Cap, and a Lifetime Rate Cap.  Caps of 2/2/6 would mean a rate could adjust as much as 2% in the first adjustment (regardless of the fully indexed rate), 2% any adjustment thereafter (regardless of the fully indexed rate), and 6% over the life of a loan (regardless of the fully indexed rate).  Some loans may have a “floor” for adjustments as well, meaning that your rate may not decrease a certain amount from the initial rate.

Calculating an adjustment: the possible good news.  If you have a 5/1 ARM based on the 1 year Treasury Bill(.49%) with a margin of 2.75% and 2/2/5 Caps, well, you are in good shape for now.  .49%(Index) + 2.75%(Margin) = 3.24% Fully Indexed.(You may have a floor in your adjustment).  Do yourself a favor and check out your mortgage note you signed, or contact your loan servicer for your ARM details. 

Keep in mind, if you have sufficient equity, that now is still a great time to refinance into a fxed rate or Prime ARM loan depending on your needs.

Requests for purchase loan quotes were up 12% in June vs. May, and up 230% since the start of the year, signifying what could be good news in the number of people who are shopping for homes.  Zillow Mortgage Marketplace saw more than 32,000 requests for purchase loans in June versus just under 10,000 in January.

Meanwhile, requests for refinance loans were down -36% in June vs. May, and down     -28% from the start of the year.  This is attributed to a rise in mortgage rates in recent weeks.  Today’s average rate for a  30-year fixed loan is 5.35%, up from as low as 4.96% in May.

Today, the Obama administration announced an expansion of the Making Home Affordable plan, which gives homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments.

Housing and Urban Development Secretary Shaun Donovan announced that the program now covers homeowners who are current but up to 125% underwater on their mortgage.  Previously, only those homeowners who were 105% underwater qualified, so this opens the door to a significant number of additional people who need help.  According to our analysis of the Q1 Zillow Real Estate Market Reports, that means up to 36% of all homeowners with mortgages, or 20.1 million households, could now potentially qualify for the plan.  However, a requirement for this program is that the loan must be backed by Fannie Mae or Freddie Mac.  Check if your loan is backed by Fannie or Freddie here.

It seems that the official Making Home Affodable Web site, however, still has the old 105% number on their refinance eligibility tool.  Hopefully someone will update this soon.

If you are underwater on your mortgage, a great way to find someone who may be able to help you refinance is by submitting a loan request–anonymously–through Zillow Mortgage Marketplace.  Your request will be posted to the marketplace, where thousands of lenders can assess your situation and provide you with custom quotes if they are able to help you.

Many people in who are current on their mortgage payments and want to refinance their home have spoken with their lender about the Obama refinance — where they can be up to 105% “under water” and still get a Fannie Mae / Freddie Mac loan.

What they are finding out once their appraisal comes back is that they are actually “under water” by more than 105% — and now they are trying to decide what to do. Should they just keep making payments at their high interest rate? Should they stop making payments and try to get a loan modification? Should they try for a loan modification even though they are current?

All of these are good questions - and really, there is no easy answer. There for sure is not an answer that will fit everyone’s situation perfectly — each situation is different and individual.

But…

There is a possibility — note the word possibility — that the guidelines on the Obama refinance will soon be expanded where you can be up to 125% upside down on your home and qualify for the Obama refinance.

It hasn’t been made official yet — but for many people who currently have been turned down by their lender and are trying to decide whether to:

1. Just keep making their mortgage payments as normal
2. Stop making payments and try to get a loan modification
3. Try for a loan modification even though they are current

Now there is at least one more option on the table — wait and see if the Obama refinance guidelines get expanded.

According to Bloomberg:

Fannie Mae and Freddie Mac may get permission to begin refinancing mortgages with loan-to-value ratios above 105 percent as the Obama administration seeks to boost participation in its anti-foreclosure programs.

“We’re actively considering how to structure a program that makes sense over 105 percent,” Federal Housing Finance Agency Director James Lockhart said yesterday. He said a ratio of 125 percent “is a number” that’s on the table, though “not necessarily the number we’re going to end up with.”

After this week in rate increases…I kind of feel like I imagine Tyson did….Where did that come from….

Unlike Tyson we need to shake this off…Rates went from +/- .125% of 5% to +/- .125% of 6% in what felt like less time than it took Buster to Knock out Tyson…

We need to take a breath and really look at where rates are.  6% is still historically on the very low side.  Unfortunately, I think the sticker shock will make many who were debating purchasing a home to shut it down!  As consumers do not lose sight of the fact that Rates are at historic lows (even at 6%) and property values are deflated.  Rarely if ever have these 2 events happened at the same time. 

Will property values continue to depreciate as rates rise?  I wish I had the answer to that.