Archive for the ‘General’ Category

What is UP with closing costs?

February 9, 2009

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Does it smell funny in here?  Like upwithclosingcosts?

What is up-with-closing-costs?

It can be surprising for consumers to hear the total dollar amount needed to close on a refinance of their mortgage.  Granted, even though most borrowers finance the closing costs in to the new loan amount, the idea of increasing your loan amount by 4, 5, 6, or $7,000 can take the wind out of an otherwise exciting conversation.

So why so high?

Here is the short version — each process and cost that had to be completed when you purchased your house and got your original mortgage has to be completed again for the new mortgage (new credit report, appraisal report, new file to be underwritten, new flood cert, new closing attorney or title company, updated title search, mortgage fees, state and recording fees and title insurance fees, etc). 

Here is the longer version — a refinancing of your mortgage is not just a “re-do” of your mortgage.  It is obtaining a new mortgage for the purposes of paying off the old mortgage.  A lot of people mistakenly think that because mortgage rates are lower, that a quick phone call to their current loan services will allow them to redo a few pages with the lower rate, drop their monthly mortgage payment and move on.  But, because loans are sold in a secondary market, the new loan must conform to the current guidelines in the market.  And because guidelines change (loan to value ratios, combined loan to value ratios, debt to income restrictions, credit score requirements, etc.) and because personal variables change (your credit score, the value of your house, your income and monthly debt, etc.), these things have to be re-verified to confirm that you do, in fact, qualify for a new mortgage.

Does the current mortgage company understand they are going to lose your business?

Yes.  And in some cases (depending on the servicer), because of the current state of the economy, they are glad to be losing your business (your loan paid in full and coming off of their books).

But back to the closing costs . . . can anything be done to get the closing costs lower?  or what about a no closing cost option?

The closing costs are a direct product of the interest rate.  The lower the interest rate, the higher the closing costs.  The higher the interest rate, the lower the closing costs.  In the past (as recent as December 2008), mortgage originators could offer customers the option of doing a no-cost refinance.  By raising the rate on the mortgage above the current market rate, lenders would pay additional dollars to the originator, which in turn could be used to pay for part or all of your closing costs. 

Here is an example:  assume that you have a $250,000 mortgage at 6.5%.  You have no idea how long you might live in the house.  In the past, if today’s rate was 5.0%, I could offer my clients a rate of 5.75%, and at that rate, the lender might pay an additional $$6,000 in commission to Hillside Lending.  In that scenario, we would pay for the appraisal fee, the credit report fee, attorney fees, recording fees, title insurance, state tax, recording fees, etc. and still have enough left over to collect a commission on the closing.  So, the customer has moved their rate from 6.5% to 5.75% with $0 in closing costs (no costs out of pocket and no closing costs financed in to the new loan amount — essentially, no time to make up the closing costs, so it won’t matter if they move in 12 months). 

In December 2008, when mortgage rates took their first dip down, lenders stopped pricing their rate sheets to allow for this type of no-closing cost option.  Why?  For fear that the entire country would refinance (they be writing checks for $6,000 at each closing) and if interest rates continued to fall even lower, those same consumers might refinance again, never keeping the loans long enough for the lenders to recoup their $6,000 investment.  Similarly, the ability to raise the interest rate to get rid of the origination fee (points versus no points) has become difficult, and in most cases, because of the amount of increase in the rate, is cost prohibitive.

So, the best advice for closing costs?  Getting the best mortgage is not necessarily about getting the lowest closing costs.  It is about getting a great rate, with competitive closing costs, and great, professional service.  I have had leads and clients (who, in the name of good consumerism and in the hopes of saving $100 in closing costs) have worked to get additional information or quote from another mortgage source (or even their current loan servicer), only to have interest rates go up 0.25% or 0.5% in the process and miss out on the chance of savings hundreds and hundreds of dollars over the life of the loan.

 

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 http://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.

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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.

Uh oh . . . effects of the trickle-down.

March 4, 2008

“100% Financing with Mortgage Insurance.  What is it??!”

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 “Well, it’s insurance for mortgage loans with a 100% loan-to-value, usually paid monthly by a borrower as part of their monthly mortgage payment, protecting a lender against a mortgagor’s default, but that’s not important right now.”

On March 30, 2007, I wrote a post about the after-effects (or the predictive after-effects) of the sub prime mortgage meltdown.  My first point was that 100% financing options would continue to become more and more restrictive, even to the average borrower.

So . . . over the next few weeks, keep that in mind (developing story).

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.

ARMs . . . back then, very cool. Now, not so cool.

January 18, 2008

A few years ago, ARMs, or adjustable rate mortgages, became increasingly popular.  With most borrowers assuming that they wouldn’t live in the same house for more than 7 or 10 years, lots of people took advantage of lower mortgage rates and interest-only payments by financing their homes on a adjustable rate mortgage, or ARM.  Now, as fixed mortgages rates dip lower and lower, the idea of an adjustable rate mortgage (ARM) may not seem like the best plan.  You know, a lot of things in life seem like a really good idea at the time . . . and then, we look back and realize that they weren’t as great as we thought.  I wonder if Sylvester Stallone has ever had that feeling . . . hmmmmm. 

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You get the idea. 

And, if you don’t get the idea, kudos to you, you’re probably better off for not having spent your time watching Lincoln Hawk (a struggling trucker trying to keep his life together and win his son back by entering a national arm-wrestling contest).  And, you probably also did NOT spend a lot of time challenging your older brother to arm wrestling bouts, turning your hat around backwards and using the secret “over-the-top” Hawk grip.

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My point?

If you have an adjustable rate mortgage (even if the rate is REALLY low), now may be the best time to take advantage of locking-in on a fantastically low fixed rate mortgage.  In the past, I advised my clients to consider refinancing their ARM only if it was set to adjust in the next 12 months.  Since Fall 2007, my advice has been broadened to anyone with an adjustable rate mortgage set to adjust in the next 24 months.  And, since Monday (and since mortgage rates dipped below 5.5%), my advice is this . . . if you have an ARM, and you plan on staying in your home past the fixed-term remaining on your ARM, you should take advantage of rates and refinance.

And if you don’t . . . (big movie-announcer voice) you may one day find yourself “driving headlong towards the biggest fight of [your] life,” “because some fight for money . . . some fight for glory . . . he’s fighting for his son’s love.”  What??!!!??

Ok, if you don’t take advantage of rates and refinance . . . (no big movie-announcer voice) you could miss out on a great fixed-rate mortgage.

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.

Should I lock or should I float?

January 17, 2008

The somewhat edited-to-fit words of the English-punk-rock-poets, the Clash, “Should I lock or should I float-nnnoooowwwwww . . . If you lock there could be trouble . . . if you don’t there could be double.” 

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Ah, the million-dollar question . . . it comes in a few different versions and varieties, but they all mean the same thing.  “Is now a good time to refinance?”; “What do you think mortgage rates will do over the next weeks and months?”; “Do you think mortgage rates will go up/down?”; “Should I lock-in now and protect my mortgage rate, or should I float and see what happens?” 

Translation:  I want the best rate on my mortgage (and who doesn’t).

With the best tools available, I monitor the mortgage-backed securities market to help my clients make the best-educated decision available on the trends in the mortgage market.  I give advice to lock-in when the market is unstable, un-predictable or moving in the wrong direction; and I give advice to float (not lock-in) when the chance of reward (better rates) outweighs the risks of waiting.  Inevitably, like even the best economists, the best market-forecasters, and the best weathermen (weather-people??), sometimes my advice works out perfectly . . . sometimes not so much.

So, what should you do when looking to refinance or purchase a home?  How do you decide to lock-in now or wait and see what happens?  My advice to clients (in addition to giving them market data, market trends and up-coming economic release info that may move the market) has always been this:  which would make you more upset, if we DID lock-in and mortgage rates went DOWN, or if we DID NOT lock-in and mortgage rates went UP.  Most people choose the latter — not locking and rates going UP would make them more angry, giving them a higher payment than they had hoped for and expected. 

Secondly, be content with your decision.  Yes, ultimately, the decision is to you, the borrower.  Locking-in your mortgage means that the broker has reserved money with a specific investor in your name at that particular rate . . . and in most cases, the lock-in is for better-or-worse.  If mortgage rates go UP, you would be horrified to get a call from your mortgage broker saying, “Yeah, I know we locked-in, but . . . ”  Although, I have learned to not be surprised when I get the same type of phone call on the flip-side of that analogy. 

Trust me, everyone wants the best deal on their mortgage.  And if you are willing to bail on your mortgage broker — who provided you with timely advice, who locked your rate to protect you against a volatile market, who you would have been indebted to had the market moved the other way, who has (assumably) provided you with outstanding customer service . . . if you are willing to jump-ship on him or her, because you can save a few $$ somewhere else . . .  (deep breath) . . . well, I’ll say this, you’re not the only one.  At the justification/rationalization of saving a few dollars, people sometimes make strange decisions, forget previous conversations, and quite simply change the rules — i.e. “Yes, I know I asked you to lock-in my rate, but now . . . ”

As I told a good friend of mine yesterday — who asked the aforementioned million dollar question (in a slightly different way), “Do you think this will be as low as mortgage rates go?” — I told him, “we will know for certain that mortgage rates have hit their lowest point once they go up and never come back down.”

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.