Pricing a Home Affordable Refinance

Home Affordable Refinances allow home owners with conventional mortgages (Fannie Mae or Freddie Mac) who have had their homes depreciate refinance at competitive market rates.  

Factors that impact the mortgage interest rate are:

• loan to value (new loan amount divided by the appraised value)
• the lowest middle credit score of all borrowers on the loan
• lock period and loan loan amount

A Seattle couple who purchased their home in 2005 for $400,000 with a 20% down payment with an interest only mortgage still has a loan balance of $320,000 if they have not made any additional payments towards principal.  This couple has excellent credit and is interested in refinancing but the big mystery is how much the home will appraise for since it's based on what other homes similar to theirs have recently sold and closed for.  

They currently make their mortgage payments to Chase and their mortgage is securitized by Freddie Mac, which means they probably qualify for the Freddie's Home Affordable Refinance Program:  Relief Refinance Mortgage.  With this mortgage, the loan amount is limited to current balance plus $5,000.   In order to limit the amount of cash possibly due at closing, I often price the rate at zero points to reduce closing costs.

Here's what current rates would look like based on different appraised values using a 30 year fixed rate priced with zero points (origination or discount):

Loan to value of up to 95%:  4.500% with 0 points (apr 4.571%).  This would be the same rate if the home has a loan to value of 80% (roughly $410,000).   Based on the Seattle couple's scenario, their home would need to appraise for $340,000 or more to qualify for this rate.

Loan to value over 95% and up to 97%:  4.625% with 0 points (apr 4.697%).  The home would need to appraise for around $335,000.

Loan to value over 97% and up to 105%:  4.750% with 0 points (apr 4.823%).  The home would need to appraise for at least $310,000.

Unless it seems real obvious to me what the homes appraised value may be, I tend to lock based on the worse case "possible scenario".  Once we receive the appraisal, we can adjust the rate accordingly.   If the appraisal comes in lower than the worse case "possible scenario", the home owner does have options, including bringing in cash to closing or terminating the refinance at the cost of the appraisal deposit.

Fannie Mae and Freddie Mac's Home Affordable Refinance program is helping many Washington state homeowners reduce their mortgage payments or convert their adjustable rate or interest only mortgage into a fully amortized mortgage.   This program is available for owner occupied, vacation homes and rental/investment property.