Reviewing an ARM Note for a Neighbor in West Seattle

January 27, 2009 by 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 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 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: , , , ,

Should You Wait for 4.5% Mortgage Rates to Refi?

December 8, 2008 by 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?

  1. 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.

  2. Consider pricing the mortgage as a no-cost refinance so that should rates drop low enough, you can refinance again should it be justified.   

  3. 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.

  4. 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.

Related posts:

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 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?”
Filed Under: Interest Rates, Refinance Tagged With: , ,
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