Refinance - The Mortgage Porter

Reviewing an ARM Note for a Neighbor in West Seattle

January 27, 2009 by Rhonda Porter Leave a Comment

I've been working with a home owner in West Seattle who has an adjustable rate mortgage that she obtained almost five years ago from a big "local" bank. She contacted me to obtain rate quotes for refinance because her ARM is set to adjust soon. Here's what a review of her Note reveals:

The Note rate is 4.125% for five years with the first adjustment coming up on May 1, 2009. The index is based on the 1 Year Treasury (CMT) and her margin is 2.75%.

If her ARM were set to adjust today, her new rate would be based on adding the margin of 2.75% to the 1 Year Treasury rate of 0.49% rounded to the nearest 0.125% = 3.25%. (Indices are changing dramatically in our current climate–it's hard to say where the CMT will be on May 2009).

This rate is amortized based on the remaining term of 25 years and every May her ARM will continue to adjust based on where the current index is (1 year Treasury – CMT) plus the margin of 2.75%. This is also limited to specific caps that her Note features of 2% annually and a lifetime ceiling of 10.125%.

Let's assume her rate adjust to 3.25% in May 2009. The highest her rate could be on May 2010 is 5.25% and the lowest is 2.75% (the lowest the rate may ever be is limited to the margin of 2.75%). If rates continuing rising, the worse case scenario would look like this: May 2011 = 7.25%; May 2012 = 9.25%; May 2013 = 10.125% (because of the lifetime cap of 10.125%).

If worse case scenario, the CMT climbs dramatically over the next few months, the highest her rate could be is 6.125% based on her 2% rate caps.

Should this home owner refinance with her adjustment date looming near? It really depends on what her personal financial plans are and if she can tolerate having her rate change annually. Her main risk is where rates may be in the future. The choice is hers.

What would you do?

Are you a Seattle area home owner with an ARM? I'm happy to review your Note for you–no refinance required.

Filed Under: Mortgage Programs, Refinance

What to do if you missed out on refinancing with last week’s rates

January 22, 2009 by Rhonda Porter 2 Comments

Tuesday, following the holiday, rates popped up about a half point to rate. Last week, the very same people I was quoting mid-to-high-4’s to who opted not to lock yet, now are receiving updates with rates in the low 5’s…much to their surprise. Why didn’t they lock? Because some want just 0.125% better in rate and some want the rate priced with zero points (which is a much taller order than 0.125% improvement in rate these days with rebate pricing almost non-existent).

[Read more…]

Filed Under: Interest Rates, Refinance

How Much Reserves are Required When Refinancing?

January 8, 2009 by Rhonda Porter 5 Comments

I had a great question yesterday from a potential client who asked how come my Good Faith Estimate was showing more reserves being required than the other lenders he was comparing me to. [Read more…]

Filed Under: Good Faith Estimate, Refinance Tagged With: good faith estimate, impounds, quote, refi, reserves

Should You Wait for 4.5% Mortgage Rates to Refi?

December 8, 2008 by Rhonda Porter 6 Comments

Personally, I would not wait for the proposed, much talked about 4.5% mortgage interest rate. Check out the last word from this Sunday's Seattle PI's real estate section: "4.5% mortgage rate seen as possible".

For the most part, mortgage interest rates are determined by supply and demand: they are bonds (mortgage backed securities) that are traded. The Treasury has been discussing buying mortgage backed securities (MBS) from Fannie Mae and Freddie Mac which should lower rates. Mortgage interest rates are not set or directly controlled such as the Fed Funds rate where the Fed decides exactly how much the rate will adjust, if at all. Another factor to consider, if this becomes more than the current speculation, is that the talk has just been about purchasing Fannie and Freddie MBS. Those who would potentially benefit from the future lower rate would need to qualify for a conventional mortgage.

What would I do if I were considering a refinance?

Contact a qualified mortgage professional who has the ability to float down or renegotiate your rate should they dramatically drop after your rate is locked.
Consider pricing the mortgage as a no-cost refinance so that should rates drop low enough, you can refinance again should it be justified.
Have a plan. Review your goals with your mortgage professional to make sure refinance makes sense. If you're not planning on retaining your mortgage long enough to break even, it may not make sense to proceed with a refi. Focusing just on the rate and not factoring in closing costs and break-even periods can be costly.
Get ready. Apply early so you're in the best position to lock. If today's current rates do not pencil out, determine what rate will. Some mortgage professionals will agree to a "forward lock" in the event your target rate (or better) becomes available.

If a refi boom happens, be prepared for the transaction to take longer. Fact is, there are now fewer people in this industry from Loan Originators, Processors, Underwriters and Escrow Officers to handle the increased volumes.

Questions? I'm licensed to provide mortgage in Washington State. Contact me.

Get Ready, Get Set: Refi!

Declining Home Values: Good for Buyers, Bad for Refi's

Why Your Loan Originator Needs a Complete Loan Application Before Locking

Filed Under: Refinance

Rates on Bank Websites

October 23, 2008 by Rhonda Porter Leave a Comment

I received this email from a client yesterday. Since it’s a common question, I thought I’d share it with you:

“I just noticed on the [big bank’s] website that the conforming mortgage rate with 1 point is now 5.75.

Do you know what type of rate it would be for conforming jumbo without paying a point?

How much do you anticipate my closing costs will be if I decide to refinance? I know [big bank] has a new program now where they pay for all closing costs besides interim interest and taxes when you refinance. Do you know if any other banks offer the same program?”

[Read more…]

Filed Under: Interest Rates, Refinance Tagged With: banks, rates, refi

Get Ready, Get Set: Refi!

September 9, 2008 by Rhonda Porter Leave a Comment

Mortgage interest rates are back at attractive level ranging in the mid-5s for a 30 year fixed with only one point (high5’s with zero points). Our last refinance opportunity was an exercise in frustration for many. Home owners were contacting their loan originators with "what’s the rate now?" and calling later that day or next with the same question. Mortgage interest rates are a moving target. In our present market, I’m receiving on average 2-3 rate sheets per day. Mortgage interest rates can move just as quickly up as they have down. In addition, there are fewer and fewer loan originators remaining in the market to help those who are ready to refinance.

If you are serious about refinancing, I suggest the following:

Contact your local Mortgage Professional (sorry, I can only help those who have property in the State of Washington) to find out what the current rates are and to see if refinancing makes sense for you.
Have a recent mortgage statement or your Note to provide detailed information.
Complete a loan application and be prepared to have your credit report ran (interest rates are very credit score sensitive).
Have your most recent paystubs and last W2 ready. Your LO may also want your last bank statements and copies of your drivers license.

Refinances take approximately 30 days in this market, assuming there are no issues with your appraisal (a second appraisal or additional comps may cause extra time). Make sure that your Mortgage Professional is allowing plenty of time for your lock in order to avoid needing an extension.

If rates stay low and enough people take advantage and jump on the refi bandwagon, be prepared for the process to take longer than it seems it should. It’s a simple fact in this market there are fewer people doing the same amount of work. Every aspect of the transaction may become bogged down.

If you have a mortgage with a higher rate with a loan amount of $522,100 – $567,500, you may really want to act soon with your refinance as conforming jumbo and FHA jumbo loan limits are being reduced at the first of the year to $522,100.

Have a little patience, cooperate with your Mortgage Professional and get your lower mortgage interest rate.

Filed Under: Refinance

Why Your Loan Originator Needs a Complete Application BEFORE Locking a Rate

May 19, 2008 by Rhonda Porter Leave a Comment

A home owner contacted me wanting to know how their rate could change so much from their original lock with his current lender for his refinance. He thought this was his scenario:

15 Year Fixed Rate at 5.375% (I’m assuming that he was paying a point–I cannot tell from this lenders lock confirmation). Here are the other factors this rate was based on for a $417,000 loan amount:

Rate Term Refinance (no cash out, he’s actually bringing cash to closing in order to bring his loan amount down to the conforming level).

700 Mid Scores

62% Loan to Value

The LO locked in the rate based on this information about two weeks ago and just provided a "lock confirmation". It’s actually a lock request with the lender she’s brokering the loan to. Two weeks later, the borrower finds out that his loan is being priced based on the following:

15 Year Fixed Rate at 5.75% or 15 Year Fixed Rate at 5.375% plus 1.50 additional points. Why the change? After 2 weeks, the LO lets the borrower know that the loan is repriced due to:

Cash Out Refinance = 0.75% Hit to Fee. He has a second mortgage that is being paid off with the refinance that was not from when he purchased his home. Fannie/Freddie classify this (paying off a non-purchase money second) as a "cash out" refinance, even though he’s bringing cash to closing.

627 Mid Credit Score with a 70% loan to value = 0.75% Hit to Fee. This came to a surprise to the borrower who actually thought his scores were much higher. With Fannie/Freddie’s credit score (risked based) pricing, this is another whammo to the borrower.

Cash out and the borrowers credit scores should have been known to the Loan Originator if not prior to locking the loan, then mere moments afterward. The LO should have immediately notified their client of the differences between the information used to lock the mortgage and reality.

Loan to value can be tricky for a LO to know with certainty…especially these days. We often have to rely on our clients to give us an honest estimate of what they feel their home is worth based on what other homes like theirs have sold for in their neighborhood. Until we have the appraisal, we do not know how the home will be valued.

I’m sharing this story because there are valuable lessons here for us to learn from.

Borrowers:

If you’re serious about locking in a mortgage rate, complete a loan application for your Mortgage Professional and allow them to run your credit.
Obtain a written Lock Confirmation within 48 hours of locking in your rate.
If you smell something fishy…it’s probably shark.

Loan Originators:

If you have bad news (lower credit score, repriced lock, low appraisal, etc.) deliver it right away. Don’t wait…it’s not going to go away. Let your client know in full detail what you’re having to deal with and what steps you’re going to take to remedy with.
Whenever the terms or cost of the proposed mortgage change, contact your client and provide them with an updated Good Faith Estimate.

Currently, this borrower feels the LO gambled his mortgage interest rate. After reviewing the documentation I’ve been provided, I think it’s more likely that she was just really a really poor communicator. Perhaps she was hoping rates would improve enough to absorb the significant 1.5% hit to fee…I can really only guess.

This is far more than a getting a "rate quote" and saying, "that sounds good, lock it". When you’re locking in your interest rate, you are commiting to the Loan Originator and the Loan Originator is making a commitment to the lender that the loan will be funded. Your lock is only as good as the information used when it was submitted to the lender.

Filed Under: Mortgage, Predatory Lending, Refinance, Residential Purchase

I Love Checking Out ARMs: Reviewing An Existing Mortgage

April 15, 2008 by Rhonda Porter 1 Comment

Recently a friend approached me confessing to having one of those "awful adjustable mortgages"…she thinks she needs to refinance and take advantage of today’s lower rates. Before assuming that someone "needs" to refinance, I like to review their current mortgage and what their financial goals are. Sometimes, people do not need to refinance…they just need to understand their mortgage terms.

Current Mortgage: P&I Payment $3,330 (original balance $520,000).

7/1 Adjustable Rate Mortgage: Note Rate 6.625%
Caps: 2/2/5
Margin: 2.25
Index: 1 Year LIBOR (currently 2.637% as of this the date of this post).

There is approx. 65 months remaining with the fixed period rate of 6.625% before the mortgage adjusts. When the mortgage adjusts, the new rate will be 2.25% plus the current 1 year LIBOR rate EXCEPT the rate will be no lower than 4.625% and no higher than 8.625% due to the 2% adjustment cap.

Best case scenario at first adjustment date with current mortgage:

Rate: 4.625% with principal and interest payments for 12 months of $2,780. Note: If the mortgage was adjusting today, the rate would be closer to the best case scenario at 4.875% (2.25% plus 2.637% = 4.887% rounded to the nearest 0.125%). Alas…they have 65 more months before knowing what the going rate for the 1 Year LIBOR will be.

Worse case scenario at first adjustment date with current mortgage:

Rate: 8.625% with principal and interest payments for 12 months of $3,937.

Possible scenarios that I suggested:

Refinancing into a conforming-jumbo mortgage 30 year fixed at 6.375%. This would provide a principal and interest payment of $3,232. With closing costs at $2900, they will break even on this scenario in 30 months. From 30 months (the break even point) to when the fixed period of the ARM is over, the savings based on the monthly payment would be $3430.

Restructuring the existing mortgage into two mortgages with a conforming first at $417,000 at 5.875% and second mortgage paying off the balance (they can opt for a fixed second or a HELOC). With a principal and interest payments of $3,194 and closing costs of $3,200; it will take 24 months to break even on this scenario. From 24 months to when the fixed period of the ARM is over, the savings based on the difference between the monthly payments would be $5,576.

This chart, which I created utilizing The Mortgage Coach, is factoring in the 2.25% margin to the LIBOR rate back to January 1999. You can see there is a significant range with the rate. Home owners with ARMs based on the LIBOR rate from 2002 to 2004 were probably grinning from ear to ear (depending on what their margin was) when you see what their rate was compared to the 30 year fixed. Timing is everything with an adjustable rate mortgage.

What ever the home owner decides to do is completely up to them. Of course one of their options is to not refinance and wait to see what the new rate (LIBOR) will be in 65 months. If they wound up with a "best case scenario" new payment, it would be pretty sweet however the cost of paying the higher payment for 65 month and we don’t know what the index will be at the date of adjustment. Understanding your mortgage and knowing your available options just starts with contacting your local Mortgage Professional.

By the way, if you are a Washington State home owner who has not heard from your loan originator lately or if you would like me to adopt your mortgage, please contact me. Many LO’s have left the industry or do not provide service once the loan has closed. I’m happy to review your ARM (or fixed rate mortgage) without any obligation to refinance.

Filed Under: Mortgage Programs, Jumbo/Non-Conforming, Refinance