Archive for April, 2008

Should I refinance my mortgage?

April 17, 2008

“Should I refinance my mortgage?”  This is certainly one of the most popular questions of 2008 . . . maybe 2nd or 3rd only to “Do you think rates will go lower?” and “Who do you think the Democrats will choose, Obama or Hillary?”  Well, I don’t have the answer to questions 2 and 3 (speculatively, I would say — not that much lower and Obama), but I do have the answer to the first question.  Should you refinance your mortgage?  Yes.  Yes, you should refinance your mortgage.

Seems simple enough, right?  Well, actually, the follow up question to “Should I refinance my mortgage” is the key to the whole thing — “When should I refinance my mortgage?”  The answer: you should refinance your mortgage once the cost of the refinance can be reasonably expected to be recouped over time by the amount of monthly savings based on how long you are planning to stay in your current house (or at least keep your mortgage).  You see where this is going . . . more questions.  “Well, what is the cost of doing a refinance?”  and “How long are you going to stay in your current home?”  “And if it is a good idea for me to refinance now, but there is a chance that rates will go lower, then maybe I should wait???”

Bottom line — because mortgage rates change daily (and in the past few months, they have been changing mid-day as well), and because closing costs and interest rates differ based on your loan amount, your loan-to-value (how much un-mortgaged equity you have in the house), your credit score and a handful of other factors, when to refinance your mortgage is a combination of knowing when it makes sense to refinance (at what rate) and knowing when it’s time to refinance (based on market conditions).

On January 15th, mortgage rates dropped — down to 5.25% or even 5.125% for a 30 year fixed rate loan — only to jump up by 0.5% or more by the end of the day.  Because of the quick move in the market, many consumers (while trying to figure out the “best deal”) missed out on the best mortgage rates in years.  To prevent this from happening to you (or from happening to you again, or from this happening to us, if you are one of my clients) you need to know two things.  1.  At what rate should you consider refinancing your mortgage.  And 2. When that rate is available.

Introducing . . .

myRateTrack.com is a new service that allows consumers to manage their refinance options with the expert advice of their mortgage professional.  The system includes RateTrack refinance reports (a refinance report specific to your loan), and it allows consumers to set a target refinance rate.  When the target refinance rate is availble, both the mortgage professional and the client are notified that it’s time to refinance (or at least quickly consider the option).

If you are a client of mine, then hopefully you received an email with information about how to access the myRateTrack.com system absolutely FREE.  If you are not a client of mine, but are interested in the service, tell your mortgage professional to get you signed up (for FREE)!!  And then you’ll know for sure — 1.  At what rate you should consider refinancing your mortgage (it’s about a 10 minute conversation with your mortgage consultant) and 2. When that target rate is available.

And then the question of the year won’t be “Should I refinance my mortgage?” but “Have you heard about myRateTrack.com??”

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com. 

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100% Financing Gone?!?

April 12, 2008

100% financing, gone?!?

Surely, you can’t be serious?

I am serious.  And don’t call me Shirley.

Yes, it’s true.  100% financing is gone.  The rumor had been circulating around the business over the past few weeks, and at the end of March, the announcement was released by mortgage insurance companies (PMI companies) that they would no longer be writing PMI insurance on loans with 100% loan-to-value (LTV). 

Months ago I blogged and predicted that one of the trickle-down effects of the mortgage meltdown would be that credit-worthy borrowers would be penalized because of a few (ok, more than a few) bad apples.  And now, borrowers who could have once easily qualified for 100% financing are now being forced to change plans.

Can you really blame the mortgage insurance companies, though??

The mortgage business is really pretty straight-forward.  In order for a bank or other lending institution to loan me and you hundreds of thousands of dollars, we should be prepared to invest a little in the process (a downpayment of 3%, for example).  We should be able to prove we can meet our credit obligations (a good credit score).  We should be able to prove that we can afford the monthly payments (capacity and document-able income).  And the collateral (the house) should be a fair asset in case we don’t pay the money we owe (appraisal).  If we put down less than 20% down, there is a chance that if the property goes into default, that the lender will lose money in the foreclosure process.  Mortgage insurance (PMI), insures against those loses.  The less money you put down = the higher the risk of loss = the higher the monthly mortgage insurance premium.  

The problem is this . . . loan guidelines got too loose.  Borrower’s didn’t have to prove an investment in the property (no downpayment).  They didn’t always have to prove excellent credit (middle to low credit scores at 100% financing).  And guidelines could be pushed to stretch a borrower’s capacity (high debt to income ratios allowed with good credit, cash in the bank, etc).

So what happens when home values slump or even worse, go down?  If values go down = less equity in the house = more risk of loss = mortgage insurance companies wished they didn’t have the policy on that house.  And, now you got it . . . 97% financing is now as big of a risk as PMI companies are willing to take.  And with that program, borrowers have to prove they have the credit (680 credit score or higher), the capacity and the collateral (appraisal).

Remind me why people used to say ugly things about PMI being a rip-off?  I never really understood that.  Hmmmmmmmm.  More on that next time.

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

The Great Mortgage Coaster

April 1, 2008

It is strange.

It is hard to follow.

It is hard to understand.

And sometimes it just doesn’t make sense.

pic_greatspace2.jpg

This TV show?  Well, yes.  But I was talking about the mortgage business.

Yes,  the Great Mortgage Coaster continues to add confusion to an already confusing time in the mortgage and real estate businesses.  The television (as hopefully depicted and proven in the picture above) is not to be blindly-trusted.  Your mother always told you that you can’t believe everything you hear, so, just because we pay $100 a month for cable and have 384+ channels, this does not mean that the information we receive is more accurate or that the information makes any more sense than when cable was $28 and there were 70 channels . . . or when there was no cable, a pair of bunny ears cost $5 and there were only 12 channels (again, the freaky orange-hair dude above with the big white face tells the story well). 

So why all of the confusion?  Why the roller coaster?  As much as mortgage rates have roller-coaster’d in the last month and mortgage lenders are roller-coastering out of business — emotionally borrowers and homeowners are up and down as well.  And just in case you don’t already know this . . . the media doesn’t do a lot to calm fears (speaking of fears — and I apologize for obsessing about the picture above, but why would let your kid get on a space machine with that big-eyed humpdy-dumpdy?!!?). 

Here are some points that should be cleared up . . .

People hear on the news the report that the Feds have lowered rates by 0.75% and assume that rates (mortgage rates) have gone down 0.75%.  Actually, the Feds “lowering rates” (lowering the Federal funding rate) historically causes mortgage rates to go up.  Check out my past posts on this topic. 

People hear on the news that the real estate market is bad.  To say that the real estate market is “bad” is to only look at it from the point of view of a seller.  Yes, if you are a seller who has an urgent need to get out of your home this may not be the best time to sell, but if you are a buyer in this market (especially a buyer without a house to sell) the market isn’t bad for you — it means that houses are on SALE!  Even if you ARE a seller . . . if you sold your current house for $10,000 less than you were hoping, but were able to buy your next house for $20,000 less than you were expecting, wouldn’t that still be a great situation!?!!?

People hear that mortgage brokers are to blame.  Bad mortgage brokers putting people in bad loans they didn’t understand.  While this may be true in some cases, the blame should be on the lenders who had hoped to make huge profits off of loans with big fees and steep interest rates — and on the consumers who decided to take on risky mortgage loans now to purchase a house now in lieu of taking some time to fix their credit, save some downpayment money and qualify for a conventional (not-so-risky) mortgage.  

And all these factors added to the confusing mix of economic news released every few days and you have a dangerous ride of ups and downs, good news and bad news . . . and as for the future of mortgage rates??  Warning:  the sudden movements of this market may cause nausea and headache, back-ache and neck pain.  People who have a heart condition or who are pregnant should consult a professional before participating. 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.