Should I refi my VA loan?

September 11, 2007 by 1 Comment

A gentleman from Bremerton called me wondering if he should refinance out of his VA adjustable rate mortgage.   The start rate is 5.125%, however it’s scheduled to adjust in a few months.   VA ARMs (and FHA) have the best caps available at 1%.  The most his ARM could adjust worse case scenario would be to 6.125%.   And his VA loan does not have any mortgage insurance (unlike an FHA loan, which could possibly justify refinancing).

He’s also considering possibly selling in a year or so. 

The adjusted rate is very close to what I could currently offer him with a new conventional loan (a new VA loan would provide a higher rate).   If he was considering living in this home "forever" and the thought of having an adjustable rate mortgage was causing him emotional grief (low risk tolerance); then I might recommend a different strategy.

His estimated mortgage balance is $224,000.   I did not ask if the existing ARM is a 3 or 5 year fixed (I was driving during our conversation).    Here’s some figures to consider:

  • Worse case adjusted principal and interest payment for 5/1 VA ARM @ 6.125% = $1460.40 (amortized for 25 years). 
  • Worse case adjusted principal and interest payment for 3/1 VA ARM @ 6.125% = $1378.97 (amortized for 27 years).
  • Conventional mortgage refinance (assuming 80% loan to value; which offers a better rate than a VA 30 year fixed) principal and interest payment @ 6.000% based on a loan amount with closing costs financed: $1378.40. 

If the VA borrower has the 5/1 ARM scenario, it would take him just over 4 years to break even on the closing costs of the new refinance.   If the VA borrower has the 3/1 ARM scenario, it would take over 9 years to break even using the conventional refinance.   

What would you recommend?

Filed Under: FHA, Refinance

Mortgage Master is approved for FHASecure!

September 7, 2007 by 2 Comments

UPDATE:  EFFECTIVE ON FHA CASE NUMBERS ISSUED AFTER DECEMBER 31, 2008, THIS PROGRAM IS NO LONGER AVAILABLE.

Since Mortgage Master Service Corporation has been a FHA endorsed lender since our inception, we are also approved for FHASecure.  This program is designed to help home owners who after their non-FHA ARM resets, have become delinquent.   

Here's more info:

  • The mortgage being refinanced must be an adjustable rate mortgage that has adjusted (reset).  The mortgage being paid off cannot be a FHA mortgage.
  • The home owners mortgage payment 6 months prior to the reset must show no instances of making late mortgage payments.
  • Missed mortgage payments may also be included in the new loan (subject to having enough available home equity).
  • The reset of the non-FHA ARM monthly payment must be what caused the home owners inability to make their monthly payments.
  • The home owner needs to qualify for the new FHA mortgage (have sufficient income and resources per FHA guidelines).
  • Loan amounts are subject to current FHA Loan Limits
  • Subordinate financing (non-FHA second mortgage) is allowed if the new FHA loan is not enough to pay off the existing first lien, closing costs and arrearages.   
  • Expanded loan to values up to 97.75%.
  • Payment-to-income-ratio and debt-to-income-ratios remain at 31/43.
  • FHA upfront and monthly mortgage insurance applies.
  • Loan applications must be signed no later than December 31, 2008.

This program is not intended for home owners to stop making their mortgage payments once their ARM adjusts.   In fact, this is straight from the HUD Mortgagee Letter 2007-11:

"FHA reserves the right to reject for insurance those mortgage applications where it appears that a loan officer or other mortgage employee suggested that the homeowner could stop making their payments…"

I'm pleased to be able to offer this program and thankful that Mortgage Master has maintained their status as a HUD Approved Mortgagee. 

The best option is to refinance prior to your ARM adjusting (before you're delinquent).  As always, I suggest that you contact your Mortgage Professional if your ARM is scheduled to adjust within two years or less in order to make sure you're in the best position possible to refinance.   

Filed Under: FHA, Refinance

Question from a reader: Are the 30 year fixed interest only fixed for the full 30 years?

September 5, 2007 by Leave a Comment

The answer is yes, the rate is fixed…BUT… The rate is fixed for 30 years however depending on if you select the 10 year or 15 year interest only period, once the interest only period is over, the mortgage will be amortized at the same rate for the remainder of the term.

For example, let’s assume your mortgage balance is $350,000 and the rate for the 30 year fixed with interest only payment is 6.50%.

The interest only payment is: $1895.83

If you have the 10 year interest only product (usually a slightly better rate), the payment will adjust to a fully amortized mortgage based on the remaining 20 year term.   The new payment would be:  $2609.51

If you opt for the 15 year interest only product, the fully amortized mortgage based on the remaining 15 year term  be:  $3048.88

Both of the above scenario’s are assuming that there are no additional payments made towards the principal during the interest only period.   NOTE:  borrowers may need to qualify at the fully amortized payment (not the interest only payment).

Here is the email from the reader:

"Currently, we have a subprime loan with a 2-year penalty which expires  March 2008. We were told that it is a 40 year fixed at 8.83% and if we refinanced prior to the 2-year penalty expiration date, there will be a 6-months of interest penalty. However, we recently reviewed our loan documents and with a better understanding called the lender. The lender confirmed that we have a subprime loan and the rate will be adjustable after the two years.

We are considering the 30-year fixed, 10 year interest only, but want to be sure that the rate is definitely fixed for the full 30 years. We are in our mid-40s and have no intentions of selling our home, and consider this home to be our retirement home. From your financial expertise, do you think this is a good option for us?"

It’s difficult to provide advice for someone when you don’t have their entire financial picture.   This couple does not live in Washington State (where I’m licensed to practice).   

Here are factors that I would consider if I were their Mortgage Professional:

  • How much funds do they have currently reserved for their retirement?  (With their current loan being subprime, I’m assuming they are underfunded.   Most Americans are).
  • What do they anticipate their retirement income to be in 20 years?
  • How is the appreciation/depreciation in their current region and with their home?
  • In 20 years, when they retire and their income is different, can they afford the 20 or 15 year amortized payment? 
  • Are they needing the interest only payment to make current ends meet?
  • What are their financial goals for retirement?  To have no mortgage?  To be debt free?   To hang onto their house with the mortgage as a tax favored debt? 

I would caution against doing "band aid" loans that will need refinancing when you’re at retirement or close to then.   Depending on what you anticipate your income to be, should you need to refinance out of a 15 or 20 year term mortgage because your income is less, you may not be able to qualify.   You may want to consider a traditional 30 year fixed or a Fannie Mae or Freddie Mac 40 year fixed rate (without the balloon or adjustment that you have with your current mortgage).

Here are the rates I quoted last Friday (just to give you an idea of how these rates may vary from product to product):

30 Year Fixed: 6.125% (APR 6.281%).  Payment per $1000 = $6.08.

30 Year Fixed with 10 Year Interest Only:  6.500% (APR 6.653%).  Payment per $1000 = $5.42.

40 Year Fixed:  6.500% (APR 6.646%).  Payment per $1000 = $5.85.

I give them huge kudo’s for reviewing their loan documents and contacting their lender and for getting second opinions.   Their Mortgage Professional should review all possible mortgage options with this couple and make sure they understand the terms and any consequences. 

Filed Under: Financial Planning, Mortgage, Refinance

Concerned questions from a home owner regarding the “credit crisis”

August 12, 2007 by Leave a Comment

mortgageporter-thinkingThe other day, one of my past clients asked me:

“I was wondering if there are issues that could arise if this credit crisis continues in a downward spiral? The market hasn’t been doing well in the past week with concerns about the “credit crisis”.

Is there any reason for concern that we could have our home loan called in early if our mortgage company gets into trouble? Are there other issues that we should be thinking about if this causes a ripple affect to other areas of the economy?”

 

[Read more…]

Filed Under: Adjustable Rate Mortgage (ARM), Mortgage, Refinance, Residential Purchase

Don’t let your ARM smack you (or your friends)

August 4, 2007 by 2 Comments

Arm_2

If you currently have an adjustable rate or balloon mortgage that is scheduled to adjust within the next 12 months, I strongly encourage you to contact a Mortgage Professional as soon as possible.    Especially if you are considering keeping your home beyond the adjustment date. 

Don’t wait.  Here’s why:

  • Odds are your payment will increase significantly (depending on your caps) and you won’t want the new mortgage payment.
  • Underwriting guidelines have tightened significantly.   If you have issues with your credit, it is best to start work on repairing or improving your scores now instead of waiting until it’s time to refi (that’s too late).
  • Lenders are pulling back on programs.   Especially non-conforming loans (loan amounts over $417,000 or credit, assets, income or employment not meeting traditional guidelines) and ARMs.   
  • Some lenders are shutting their doors as they are not able to fund loans they’ve committed to. 
  • Less available loans may translate to fewer buyers for properties.   This will impact sales comps for appraisals.   You cannot count on huge appreciation or values on your home to bail you out of your ARM.   We’ve been fortunate in Seattle so far; I cannot see how this won’t impact our local market home values.

This is truly an urgent situation that requires your immediate attention.   The more time you can give yourself and your Mortgage Professional to determine the best strategy for your next mortgage, the better off you’ll be.   And, if you know that your friends or family members have ARMs that are due to adjust anytime soon, please encourage them to contact a Mortgage Professional as well. 

Take control of your ARM or it just may leave you stinging.

Filed Under: Adjustable Rate Mortgage (ARM), Refinance

Refinancing with FHA…now that’s Paris Hilton HOT!

July 23, 2007 by 2 Comments

Parishiltonthatshot What?  You’ve never thought of FHA mortgages as “hot”?  Read about this scenario of a client I recently helped and you just might be cooing “that’s hot”, too! [Read more…]

Filed Under: Debt Restructuring, FHA, Mortgage, Refinance

Are You Preapproved for an Interest Only Mortgage?

July 20, 2007 by Leave a Comment

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You better double check with your Mortgage Professional.  As of Sunday, July 22, 2007 underwriting guidelines are tightening up for interest only conventional (loan amounts $417,000 and lower) mortgages.

  • Fixed Rate Mortgages (ex. 30 year fixed with 10 year interest only payments) will be based on the full PITI payment using the Note Rate.  (If there is a temporary buy down, the qualifying is still based on the Note Rate).
  • Interest Only ARMs:  Qualifying is based on the full principal and interest payment (PITI) at the fully indexed rate (index + margin).
  • Negative Am. (deferred interest) ARMs:  Qualifying will be based on the full PITI at the fully indexed rate amortized over the full repayment term using the loan amount based on the amortization cap.   (I am not a fan of Option ARMs and I have never provided one to any of my clients.  For some people, they have probably been very successful tools…most of my clients, once they understood how the mortgage works, would opt for an interest only ARM instead of this mortgage).

So what does this mean?

Previous Guidelines:  If a buyer was preapproved using a 5/1 Interest Only LIBOR ARM based on an interest rate of 6.125% (note: this is NOT a rate quote and is only for purpose of illustrating the guideline changes) earlier this week qualified for a payment in the amount of $2041 (plus taxes and insurance), they could borrow $400,000.

New Guidelines:  The current index for LIBOR is 5.4 plus the margin of 2.375% for this particle loan program = a fully indexed rate of 7.775% for the same ARM mentioned above.   Qualifying the borrower for a $2041 payment based on a 30 year amortization at 7.775% means the borrower now qualifies for a loan amount of $284,200.

This will obviously have a dramatic impact on purchases and refinancing out of interest only products.   This is still very new and we’ll see if non-conforming products follow suit.

Here’s what you need to do:

  1. Agents:  Contact your Mortgage Professional today to see if you have clients who are preapproved for conventional financing with any interest only payments.   Confirm your buyer is still qualified.  (Your LO may need to check Fannie Mae guidelines).
  2. Buyers/Borrowers:  If you’re using interest only products with loan amounts of $417,000 or less, contact your Mortgage Professional to verify you are still approved.
  3. Buyers:  Now more than ever, it’s crucial that you meet with a Mortgage Professional prior to buying a home to become preapproved.   With mortgage programs and underwriting “tightening”, there will be less options compared to just a few months ago.
  4. Buyers/Borrowers:  Having solid credit is also more important.   You should review your credit a couple times a year.  If your scores are below 680, work on improving your credit.
  5. Borrowers who currently have ARMs:  Do not wait until just before your ARM is about to adjust if you are considering retaining your home.   Contact your Mortgage Professional six months in advance to review your credit in case you need to make adjustments and/or repairs.

This is not the time to be hiding or not dealing with your mortgage…guidelines are changing quickly and you need to be proactive and responsible with your largest investment.   If you need help, find a qualified Mortgage Professional such as a Certified Mortgage Planning Specialist, who has been acquired additional training and education or get a referral from someone you trust and respect.

Filed Under: Adjustable Rate Mortgage (ARM), Interest Rates, Mortgage, Refinance, Residential Purchase

Those Amazing Low Rate Offers to Refi Now in the Mail

June 9, 2007 by 1 Comment

Even at our home, we’re getting more and more amazing offers from lenders.  Recently one of my clients asked,

"We keep getting info in the mail from some odd place that says that we have a mortgage through Mortgage Masters and that they can reduce our house payment to $900.00 per month. We shred them every time we get them but now I am curious if it is true? It does not have the Mortgage Master logo on it, it just says that they know we have a mortgage balance of $266,000."

It’s amazing how much personal information that you would assume is private, is actually public.   Any lender or real estate agent can obtain a fine tuned list from a title insurance company or various other marketing companies for a fee.  It’s my opinion that if a Loan Originator has to use "cold marketing" (letters, post cards and phone calls to people they don’t know) to drum up business, it’s because they lack referral and/or repeat business from their past clients.  No one wants to work with them or their company again nor refer someone to them…therefore, they must buy leads and mail to strangers (you and me).

Many of these offers are suspect…if it seems too good to be true, it is.   Bait and switch tactics of offering low rates like 1% or skipping several months of your mortgage payment are hung out in order to have you call "Slick" at the mortgage company.   Often times, the ads will appear as if they are coming from the mortgage company you obtained your financing from (check the very small print at the bottom of the letter).   The gimmick marketing may even appear to be from a government agency or as if it’s a "special limited time offer".  Chances are, it’s a hoax.

As I mentioned at the beginning of this post, we are personally getting deluged with "amazing offers".   I think it’s because we have an adjustable rate mortgage.   And, the mortgage marketers know this…many of the pieces we receive state that and have emotional rich phrases such as "stabilize your monthly mortgage payment…it’s urgent to refinance now."   Our ARM is fixed for seven years.   We have five years left on it.  It’s not urgent for us to give up equity for closing cost to have a 30 year fixed mortgage at this time.

Another beauty, which I am going to send in to DFI to see if any actions will take place…came in a gold envelope from the "Department of Public Records" appearing as though it’s a check for $660,000.    When you open this piece (of crap…sorry, this bugs me) it claims that the "sponsored lender" is Mortgage Master Service Corporation.    I can assure you, this is not true.    It also offers us a 1% interest rate and that this loan will fund in 10 days.   This piece is from a Consumer Loan Lender.   They have different guidelines they abide by than Mortgage Bankers or Mortgage Brokers.   

The bottom line is that there are a plethora of mortgage marketers out there who are trying to take advantage of home owners fears of rates adjusting or debts…you name it.   Don’t fall for it.   If you need help with your mortgage or have any questions, contact a qualified Mortgage Professional.   

Hopefully you had a good experience with the person who helped you with your original financing…if not…contact someone you respect and trust for a referral to one.    What ever you do, don’t fall for misleading junk you receive in the mail.

UPDATE:  If you have misleading advertisements sent to your Washington State home, mail it to:

Enforcement Unit, Division of Consumer Services, DFI,  PO Box 41200, Olympia, WA 98504

Filed Under: Predatory Lending, Refinance
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