South Orange County Blog from Bob Phillips

It Frequently Pays Off To Refinance Your Mortgage

refi-questionsTo refinance a mortgage means to pay off your existing loan and replace it with a new one.

There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity.

Each has its considerations.

Lower Your Mortgage Rate

Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.

Shorten Your Loan Term

Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, an increase to your monthly payment from a shorter loan term may be negligible.

Convert ARM To Fixed Rate Mortgage

Homeowners with adjustable-rate mortgages may want the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs so be prepared to pay more to your lender each month.

Access Equity For Projects, Debts, Or Other Reasons

Called a “cash out” refinance, homeowners can sometimes use home equity to retire debts, pay for renovations, or use for other purposes including education costs and retirement. Lenders place restrictions on loans of this type. A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month – just make sure that there’s a clear benefit to you.

Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided. Many lenders offer low- or no-closing costs options for refinancing. Be sure to ask about it.

Don’t have a preferred lender?  I have a few I can wholeheartedly recommend.

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10 Questions You Should Ask Yourself Before Applying For A Refinance Mortgage: Part 1

10 Questions You Should Ask Yourself Before Applying For A Mortgage Part 1If you are considering applying for a refinance, it is important to understand the mechanics of your mortgage loan. Before you sit down to speak with your loan officer, you should consider preparing a list of questions you feel may need to be answered.

Typically, your loan officer will be available to assist through the entire mortgage process. Here are some questions that you may need to get answers to before completing your application:

1. What Type Of Loan Is Best For Me?

Your loan officer can discuss the various loan programs available to help you refinance. Some borrowers will benefit greatly from adjustable rate mortgages while others prefer fixed rate. However, other borrowers may find a fixed rate is the best option. Discuss various loan terms such as 30-year or 20-year mortgage loans.

2. What Documents Are Required?

Be prepared to provide your loan officer with several documents. The most common documents include pay stubs, bank statements and tax returns. Loan officers will also need a complete list of debts including auto payments, credit card payments and student loans.

3. What Costs Are Involved?

Prior to a loan closing you will be required to pay some costs up front. These may include appraisal fees, credit report fees and application fees.

Discuss all these costs with the loan officer to determine how much money will be required prior to the loan being approved. In addition, discuss any funds that will be required to complete the loan closing.

4. Can I Select My Own Appraiser?

When you apply for a refinance loan, lenders will require a property appraisal. Lenders typically maintain a list of approved appraisers and supply those lists to the loan officers. Typically, the loan officer will assign an appraiser to review the property. Borrowers generally have no input regarding the choice of appraisers.

5. When Will I Get A Good Faith Estimate?

Good Faith Estimates must be issued after you have completed your loan application. A second GFE is typically presented along with the HUD1 prior to closing. Keep in mind, the GFE is only an estimate of costs and that actual costs may be slightly higher or lower.

Never hesitate to ask your loan officer any questions you may have. The more questions you have addressed during the application process, the less likely you will be to be confused at the time of your mortgage closing.

Keep in mind, your loan officer is there to answer your questions and guide you through the entire loan process. For additional questions you should ask, check out tomorrow’s blog post.

Don’t Have a Preferred Loan Officer?  I have a few great lenders to wholeheartedly recommend.  Shoot me an email or give me a call.

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Reasons Why You Should Consider Refinancing Your Mortgage

Reasons Why You Should Consider Refinancing Your MortgageRefinancing a mortgage is a golden opportunity to lock in today’s low interest rate for the next 15 or 30 years. While interest rates now are still low, there’s a good chance they will be heading up in the coming months.

The Fed won’t maintain the current bond purchasing level forever, and just as rates spiked in September when the Fed hinted the bond purchasing would change, rates will spike even more when purchasing levels actually do change.

As interest rates remain very low for 30-year and 15-year mortgages, homeowners can benefit greatly from a refinance. Several types of people in particular should consider refinancing.

Carrying A High Rate

Anyone with an interest rate well above today’s level should think about a refinance. Unless the homeowner is planning to sell within the next few years, a refinance will almost always save money in the long run if the rate can be lowered by at least a percent.

Switching From FHA To Conventional

Given that FHA mortgages now carry mortgage insurance premiums for the life of the loan, it makes a lot of sense for borrowers to switch away from them when they can. Refinancing may be possible once the homeowner has built up enough equity to qualify for a mortgage from a traditional lender, without the burden of mortgage insurance.

ARM Coming Up On Adjustment

The low rate of an adjustable rate mortgage sticks only for the first few years of the mortgage. After this point, the rate adjusts each year based on market trends.

Rather than paying the adjusted rate, which is almost always higher, homeowners can refinance into a new fixed rate mortgage to lock in one of today’s low fixed rates for the duration of the mortgage.

Cash Out To Consolidate Debt

Homeowners carrying high-interest debt, like credit cards and personal loans, can often benefit from consolidating it into their mortgage. As long as they maintain at least 20 percent equity in their home, they can get a cash-out refinance for an amount higher than their current mortgage balance. They can then use the difference to pay off high-interest debt. Personally, I do not recommend this last tactic. It should only be used as a final resort.

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Why Should One Consider Refinancing Their Mortgage Now?

Why Should One Consider Refinancing Their Mortgage Now?Refinancing a mortgage is a golden opportunity to lock in today’s low interest rate for the next 15 or 30 years. While interest rates now are still low, there’s a good chance they will be heading up in the coming months.

The Fed won’t maintain the current bond purchasing level forever, and just as rates spiked in September when the Fed hinted the bond purchasing would change, rates will spike even more when purchasing levels actually do change.

As interest rates remain very low for 30-year and 15-year mortgages, homeowners can benefit greatly from a refinance. Several types of people in particular should consider refinancing.

Carrying A High Rate

Anyone with an interest rate well above today’s level should think about a refinance. Unless the homeowner is planning to sell within the next few years, a refinance will almost always save money in the long run if the rate can be lowered by at least a percent.

Switching From FHA To Conventional

Given that FHA mortgages now carry mortgage insurance premiums for the life of the loan, it makes a lot of sense for borrowers to switch away from them when they can. Refinancing may be possible once the homeowner has built up enough equity to qualify for a mortgage from a traditional lender, without the burden of mortgage insurance.

ARM Coming Up On Adjustment

The low rate of an adjustable rate mortgage sticks only for the first few years of the mortgage. After this point, the rate adjusts each year based on market trends. Rather than paying the adjusted rate, which is almost always higher, homeowners can refinance into a new fixed rate mortgage to lock in one of today’s low fixed rates for the duration of the mortgage.

Cash Out To Consolidate Debt

Homeowners carrying high-interest debt, like credit cards and personal loans, can often benefit from consolidating it into their mortgage. As long as they maintain at least 20 percent equity in their home, they can get a cash-out refinance for an amount higher than their current mortgage balance. They can then use the difference to pay off high-interest debt.

I have a couple of lenders to recommend, who have served me well for the past decade or two. Shoot me an email or give me a call if you’d like their contact info.

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Don’t Let Confusion With Mortgage Jargon Cost You

No More Confusion About Mortgage Jargon, Understand ItA recent study of US and UK home buyers, conducted by the London based Nationwide Building Society, found that more than 40% of people buying homes were confused by the jargon that lenders used to describe mortgages.

When it comes to taking out a mortgage on your home, could confusing mortgage jargon be costing you money and causing you to make ill-informed choices?

According to the study, only 31% of home buyers understood what the term “LTV” meant, an acronym that stands for “loan to value” and describes the ration between the amount of the mortgage and the value of the home.

Not only did the survey show that many mortgage borrowers were confused about what the terms meant, but they also were shy about asking for explanations of various words that they didn’t understand.

In order to make a wise financial decision and choose the right mortgage for you, it is essential to do your research and understand exactly what you are signing up for. If you are unsure of what a mortgage term means, don’t be afraid to ask your lender for clarification.

Here are a few of the common mortgage jargon words that many homebuyers don’t understand:

Adjustable Rate Mortgage

This is a loan that has an interest rate which will fluctuate over time, such as every three years or every year after the first five years. This type of mortgage can be advantageous if you plan to sell the home within the first few years of owning it. Another option is a fixed rate mortgage, which does not fluctuate.

Qualifying Ratios

This is a calculation that your mortgage lender will make in order to determine the largest mortgage that you could possibly afford to obtain. The calculation is made by looking at your income, your existing debt and other factors.

Stips Or Stipulations

If your mortgage lender mentions “stips” they are probably talking about stipulations, which are the requirements that are submitted in order to clear your mortgage to close. This includes verifications of your bank statement as well as proof of employment and rent. Verification of Rent and Verification of Employment are often abbreviated as VOR and VOE.

HUD

This refers to the US Department Of Housing Development Settlement Statement that you will be required to sign when taking out a mortgage. This document contains the details of the arrangement, including all fees agreed upon.

These are just a few examples of mortgage jargon that you might not be familiar with.

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Whatever You Do, Don’t Make These Common Mortgage Mistakes

Whatever You Do, Don'ty Make These Common Mortgage MistakesAre you applying for a mortgage on your home? Keep in mind that a mortgage is a major financial decision and choosing one will have a significant impact on the rest of your life.

Many people go into this decision without understanding all of the essential mortgage information they need to know. This means that they may not make the best choices which could result in paying much more than they need to.

If you want to save yourself from throwing away your hard earned money, here are a few common mistakes to avoid:

Trying To Time The Mortgage Interest Rate Market

Many people will wait too long to make a decision to lock in their mortgage rate, trying to wait until they think that the rates have hit bottom. However, unfortunately most of the time this leads them to wait too long and end up with a higher interest rate.

If you are waiting things out, keep a very close eye on the economic indicators. Better yet, your trusted mortgage professional would be a good source of information about the fluctuations of interest rates.

Forgetting About Closing Costs

In addition to saving up a down payment for your mortgage, don’t forget to factor in the closing costs. These can range from two percent all the way up to six percent of the value of your home.

Make sure that you have budgeted for this in advance, so that these fees don’t catch you by surprise.

Not Considering All Loan Options

There are many people out there who haven’t considered certain loan products, such as an adjustable rate mortgage, because they just don’t understand how they work. However, you might be missing out on an option that would really work well for you.

Make sure you do your research and gain an understanding of the loan options available to you.  Ask your loan officer for guidance in this area.

Looking At Just The Mortgage Rate

Remember that the mortgage interest rate is only one factor that you should consider when choosing a mortgage. Don’t forget to also consider the time frame of the mortgage closing, any restrictions on lump sum payments and any other important factors.

Following these steps will help you avoid a few of the common mistakes people make when choosing a mortgage.

Increased Interest in the Expanded HARP Program

An article from The New York Times,  written by VICKIE ELMER,   published on June 21, 2012

MORE homeowners who are “underwater,” or owe more on their homes than they are worth, have been taking advantage of an expanded Home Affordable Refinance Program to refinance their loans and obtain lower interest rates, according to a recent government report.

Industry experts expect that the numbers will continue to grow now that qualifications have been loosened.

According to the June report , by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, in the first quarter 180,000 mortgages were refinanced through what is known as HARP 2, almost double the 93,000 in the fourth quarter of 2011 and the highest quarterly number since the HARP program started in 2009.

HARP was created by the federal government to help homeowners, whose mortgages are owned or guaranteed by Fannie and Freddie and made before May 31, 2009, refinance into loans with less onerous terms.

The program was expanded last fall with several modifications, including the removal of certain fees and a second appraisal, and an extension of the deadline to Dec. 31, 2013.

In addition, the cap was removed on the loan-to-value ratio. When the program began, there had been a ceiling of 125 percent, meaning loans could not be underwater by more than 25 percent. (Underwater loans are more than 100 percent loan to value.)

“You’ll see an explosion in that above-125-L.T.V. category,” said Andrew BonSalle, a senior vice president of Fannie Mae and the head of its underwriting and pricing.

Since the beginning of the year, 4,400 loans with L.T.V.’s greater than 125 percent were refinanced, according to the Federal Housing Finance Agency report. And of the 180,000 total HARP refinancings in the first quarter, 41,000 were to New Jersey homeowners and 32,000 to New York.

“There’s a lot of borrowers who don’t believe they’re eligible,” Mr. BonSalle said, adding that lenders need to keep reaching out to underwater homeowners so they know they can participate.

He noted, however, that because of the boom in HARP 2 refinancing combined with other refinancing, thanks to historically low interest rates, some lenders have been facing large application backlogs. Underwater homeowners will, therefore, need to be patient with their lenders.

“HARP business is very strong,” said Kevin Watters, a senior vice president and the head of mortgage originations at JPMorgan Chase.

“Homeowners should refinance while interest rates are still low,” Mr. Watters added, explaining that customers can supply much of the necessary information through a secure Web site in addition to personal interviews.

Like many other lenders, JPMorgan Chase has been focused on offering HARP refinancing to current customers whose mortgages are serviced by the bank. Borrowers can also contact any participating lender, though finding one that accepts HARP applications from new customers may be challenging.

Mr. Watters said that Chase was mailing letters to customers who prequalified for a HARP 2 refinancing. The letters offer borrowers reduced rates with no closing costs and closing in 30 days, assuming homeowners can show verification of employment.

Under the federal guidelines, HARP borrowers must also be current on their monthly mortgage payments, though they may have had one late payment, provided it occurred at least six months before they applied to the HARP program.

Homeowners with private mortgage insurance will generally be allowed to carry that over to the new refinanced HARP loan, Mr. BonSalle said.

But borrowers with a second mortgage must get the lender of that loan to agree to the HARP refinancing.”  ( End of article.)

If you’re interested to see if you qualify for this program, contact your favorite lender.  If you need a recommendation of one, I have a couple great lenders I can whole-heartedly put you in touch with.

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Four ways distressed homeowners can start fresh

Tara-Nicholle Nelson is one of my favorite bloggers. She  is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara-Nicholle is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. The following is a recent article she wrote:

Four ways distressed homeowners can start fresh

Clearly, thankfully, the market is looking up. Way up, actually.

In many markets, tales of multiple offers and a dearth of homes vis-à-vis the numbers of buyers who want them are becoming commonplace. Now, many analysts point to the banks’ intentional decision to keep many foreclosures off the market as artificially driving this demand.

But if you’re a seller on today’s market, the dynamics underlying the demand are much less important than the fact that your chances of getting your home sold at a good price are better than they have been in a long, long time.

The news for buyers is not all bad, either: For the first time in a long while, buyers are not faced with the double-edged sword prospect of buying into a declining market; appraisals are coming in at the agreed-upon purchase price; and mortgage rates are still uber-low (fingers-crossed).

But with all this fresh market optimism, there is an ugly elephant in our collective room, which is that many, many homeowners and former homeowners are still dealing with the lingering remnants of the subprime market mess and the real estate recession. Many are still upside down, still struggling to make the too-high payments on loans left over from the last peak of the market or trying to recover financially and otherwise from a recession-era foreclosure or short sale.

For those folks — a huge, if silent, number — here are four routes to a fresh slate:

1. Sell. Fact is, the vast majority of underwater homeowners who could stay put did. Walking away was very much the exception and not the rule. The result? There are hundreds of thousands of homeowners out there with homes that lost value during the recession who are still holding on to subprime loans that have long since reset. While these loans’ rates tend to be low, if you had a short-term, interest-only, adjustable-rate mortgage in 2005 or 2006, chances are good that your payment actually increased steeply when you were required to begin paying the principal.

For sellers who have scrimped and saved, taken on second jobs, rented out rooms or allowed important expenses like property taxes or other bills to go unpaid in order to make a too-high mortgage payment, the current market dynamics may present a good opportunity to divest of an unsustainable mortgage obligation by selling or even short-selling the place.

Buyers are out en masse and prices are on the rise, meaning that you might not be as upside down as you were last year or the year before. Banks are moving short sales through much more quickly and efficiently than in years’ past (though never as quickly or efficiently as we’d hope).

The income tax exemption on debt forgiven through a short sale is still valid through the end of this year (an extension is probable, but by no means guaranteed).

If you know or believe that your current home is simply too expensive for you to afford with financial integrity, and there is no end in sight, talk with a local agent and a tax professional about how you might be able to get a clean slate by selling the home.

2. Settle old seconds and HELOCs. If you lost a home to foreclosure in a nonrecourse state and you had a second mortgage or home equity line of credit, it’s entirely possible that your second is still a lingering debt. (Your first mortgage can foreclose and repossess the home, leaving the second mortgagor holding nothing but paper.) Many second-mortgage holders are not actively collecting on these loans, but they simply stay on your credit reports and eventually rear their ugly heads when the time comes for you to try to qualify for a car or a mortgage.

Some recommend bankruptcy as an expedient way of extinguishing these loans for little or nothing, but the blemish bankruptcy leaves on your credit may defeat the purpose of getting rid of the old loan in the first place. I’ve been talking with some of these banks and servicers, and many of the banks will settle these unsecured second mortgages or home equity lines of credit for as low as 10 or 20 percent of the outstanding balance.

Contact the servicer of your former home’s second or HELOC to discuss a settlement. Again, the taxes you would normally pay on the forgiven debt will be exempt through the end of this year, for most borrowers, so if you can settle this soon, it’s in your best interest to do so. If you don’t know what bank or servicer even manages this loan (many are sold and resold), check your credit report and seeing who is reporting the debt, if anyone, or take out your old documents with the loan number and researching the trail starting with your original servicer.

3. Check your credit reports and dispute expired derogatories. It might be hard to believe, but the first foreclosures from the last real estate recession began happening circa 2005-2006, so they are set to be timing off of credit reports right about now. If you had an early-recession foreclosure or short sale, check your credit reports now to ensure that they are being reported correctly, or not at all, if the seven-year expiration time frame has run. In fact, even if your short sale or foreclosure was not that early, it may make sense to pull your credit reports and understand how things are being reported and the impact these items are having on your credit score. You might be surprised, in one direction or the other.

4. Refinance and lock in low rates. If you lost value in your home during the recession, it might have been nearly impossible to refinance it to take advantage of lower rates and bring your payment down. With sales prices on the upswing and rates still low, though, you may have a new opportunity to refinance a “bad” loan and lock it in a today’s uber-low rates. ( End of Tara-Nicholle’s article.)

I encourage you to follow her on Facebook ( https://www.facebook.com/taranicholle ) or Twitter. ( https://twitter.com/#!/taranicholle )

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Adjustable Rate Mortgages Adjusting To 3.000 Percent Right Now

Posted in Adjustable Rate Mortgages by southorangecounty on February 8, 2011

ARM adjustment rates for 2011

If your ARM is due to adjust this spring, your best move may be to allow it. Don’t rush to refinance — your rate may be adjusting lower.

It’s because of how adjusted mortgage rates are calculated.

First, let’s look at the lifecycle of a conventional, adjustable rate mortgage:

  1. There’s a “starter period” of several years in which the interest rate remains fixed.
  2. There’s an initial adjustment to rate after the starter period. This is called the “first adjustment”.
  3. There’s a subsequent adjustment until the loan’s term expires. The adjustment is usually annual.

The starter period will vary from 1 to 10 years, but once that timeframe ends, and the first adjustment occurs, conventional ARMs enter a lifecycle phase that is common among all ARMs — regular rate adjustments based on some pre-set formula until the loan is paid in full, and retired.

For conventional ARMs adjusting in 2011, that formula is most commonly defined as:

(12-Month LIBOR) + (2.250 Percent) = (Adjusted Mortgage Rate)

LIBOR is an acronym for London Interbank Offered Rate. It’s the rate at which banks borrow money from each other. It’s also the variable portion of the adjustable mortgage rate equation. The corresponding constant is typically 2.25%.

Since March 2010, LIBOR has been low and, as a result, adjusting mortgage rates have been low, too.

In 2009, 5-year ARMs adjusted to 6 percent or higher. Today, they’re adjusting near 3.000 percent.

That’s a big shift. 

Therefore, strictly based on mathematics, letting your ARM adjust this year could be smarter than refinancing it. You may get yourself a lower rate.

Either way, talk to your loan officer. With mortgage rates still near historical lows, Coto de Caza homeowners have interesting options. Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

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Comparing Mortgage Rates For Adjustable- And Fixed-Rate Mortgages

Posted in Adjustable Rate Mortgages by southorangecounty on January 12, 2011

Comparing FRM to ARM mortgage rates (January 2010 - January 2011)

For some homeowners, electing to take an adjustable rate mortgage over a fixed rate one can be matter of budgeting. ARMs tend to carry lower mortgage rates and, therefore, lower monthly mortgage payment as compared to a comparable fixed rate loan.

Relative to fixed rate mortgages, current ARM pricing is excellent. Freddie Mac’s weekly Primary Mortgage Market Survey puts the 5-year ARM mortgage rate lower than the 30-year fixed rate mortgage rate by 1.02 percent.

On a $250,000 home loan, a 1.02 differential yields a payment savings of $149 per month.

ARMs are not for everyone, of course. Over time their rates can change and that can frighten people. An ARM can finish its respective 30-year lifespan with a mortgage rate as much as 6 percentage points higher from where it started. Some homeowners won’t like this.

Other homeowners, however, won’t mind it. For this group,  the ARM can be a terrific fit. Especially with the huge, relative discount in today’s pricing.

A few scenarios that should warrant consideration of a 5-year ARM include homeowners that are:

  1. Buying a new home with the intent to sell within 5 years
  2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
  3. Interested in low payments; comfortable with longer-term rate and payment uncertainty

In addition, homeowners with existing ARMs due for adjustment may want to refinance into a new ARM, if only to push the first adjustment date farther into the future.

Before choosing to go with an ARM, speak with your loan officer about how adjustable rate mortgages work, and their near- and long-term risks. Payment savings may be tempting, but with an ARM, payments are permanent.

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