The Difference One Dollar Makes: Conforming vs Jumbo Rates

July 14, 2011 by Leave a Comment

This morning via Twitter, Talon Title asked me what the difference in rate is between a conforming and jumbo mortgage. Currently, as of October 1, 2011, the jumbo loan limit is set to be reduced unless Congress passes an extension.  In the Seattle area, the loan amount for jumbos will be anything over $506,000 (currently the loan limit is $567,500) for a single family dwelling. Ben Bernanke has stated that private banking will step in to finance these borrowers needing a mortgage over the conforming loan amounts…this is at a price.  He doesn't feel this will squeeze those borrowers out of the market.  I wonder if this will squeeze more buyers into adjustable rate mortgages.

Here's the difference in rates based on current pricing (as of 8:30 a.m. on July 14, 2011) with 740+ credit and an 80% loan to value.  We know the difference in the greater Seattle area between a jumbo and conforming rate will be $61,500 in down payment or equity.

Conforming loan amount of $417,000 or lower.

30 Year Fixed:  4.500% (apr 4.602).  

5/1 ARM: 3.000% (apr 3.292).  With 5/2/5 caps, this product is fixed at 3.000% for 60 months (P&I $1686) and then may adjust up 5% to 8.000% at the 61st payment (P&I $2744) or as low as 2.25% (P&I $1114). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8% or lower than 2.25%. Based on a $400,000 loan amount.

Conforming High Balance loan amount of $417,001 to $567,500 (for King County, Snohomish County or Pierce County).

30 Year Fixed:  4.625% (apr 4.602).  

5/1 ARM: 3.875% (apr 3.912).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2379) and then may adjust up 5% to 8.875% at the 61st payment (P&I $3786) or as low as 2.75% (P&I $2102). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $506,000 loan amount.

5/1 ARM: 2.875% (apr 3.231).  With 5/2/5 caps, this product is fixed at 2.875% for 60 months (P&I $2099) and then may adjust up 5% to 7.875% (P&I $3420)at the 61st payment or as low as 2.25% (P&I $1953). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 7.875% or lower than 2.25%.  NOTE: 5% additional down payment (75% LTV) is required for this scenario. Based on a $506,000 loan amount.

Non-Conforming – Jumbo loan amounts $567,501 and higher (until October 1, 2011).

30 Year Fixed:  5.250% (apr 5.371).  

5/1 ARM: 3.875% (apr 3.904).  With 5/2/5 caps, this product is fixed at 3.875% for 60 months (P&I $2669) and then may adjust up 5% to 8.875% at the 61st payment (P&I $4246) or as low as 2.75% (P&I $2358). The rate will continue adjust up or down no more than 2% annually on the anniversary date and may never be higher than 8.875% or lower than 2.75%.  Based on a $567,501 loan amount.

Let's pretend that it's October 1, 2011 and that the changes to conforming loan limits are in place and somehow, mortgage rates are exactly the same as what I've quoted above.

The difference between the conforming high balance and jumbo rates are currently 0.625% in interest rate with the 30 year fixed mortgage. A loan amount of $506,001 or more (proposed future jumbo) would have a $193 higher mortgage payment with the jumbo rate over the conforming high balance based on rates above.

Are people going to stop buying homes that are in the current conforming high balance price range?  I don't think so… I do think that when the conforming loan limits are reduced later this year, it will cause some to select mortgage programs they might not have considered such as adjustable rate mortgages or piggy-back second mortgages.  It seems to me that Congress should allow the temporary higher loan limits to stay in place until housing becomes more stable.  There was some discussion during testimony yesterday by Congressman Miller in California, however as I mentioned, Ben Bernanke doesn't seem to think that the reduction in loan limits will impact housing significantly.  We'll know more in a few months…and don't forget, Fannie has issued "warnings" via their FAQs that we may see loan limits further reduced effective January 1, 2012.

Just for fun… since we're pretending to be in the future, here's a trip down 80s memory lane: 

Filed Under: Fannie, Freddie and FHFA, Home Equity Loans & Second Mortgages, Interest Rates, The Fed - FOMC

Ben Bernanke’s Testimony to Congress

July 13, 2011 by Leave a Comment

As I write this post, Fed Chairman Ben Bernanke is before the Financial Services committee of the House for the Semiannual Monetary Report to Congress. 

From his prepared testimony:

"…the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment."

This is why I feel so strongly that the Home Affordable Refinance program (HARP) should not require appraisal for borrowers who qualify based on credit, income and employment. The home is already depreciated, why not allow the homeowner to reduce their mortgage payment and possibly prevent a foreclosure?

Case in point, one of my clients in Federal Way contacted me to refinance their home. They are being relocated out of state and are converting their existing home to a rental since selling it right now is not an option.  They have a 5/1 ARM (set to adjust in 13 months) and are interested in a 7/1 ARM as they do not plan on retaining the home beyond 7 years. Their mortgage is securitized by Fannie Mae so they qualify for a Home Affordable refi which provides them a lower rate and allows higher loan-to-values (lower appraised values) for an investment property. With this proposed refinance, they are going to reduce their monthly mortgage payment by $389!  That's more money in the economy and helps this family manage having a rental with their relocation scenario….then we receive the appraisal which comes in lower than anticipated. 

Now my clients options are to (1) bring in cash to closing by reducing the loan amount to 95% of the appraised value (what's allowed with a HARP refi for investment properties) or (2) cancel the transaction. They elect to cancel. It just doesn't make sense to invest more in the home with the relocation especially with the timing of the relocation.  

More from Bernanke's prepared testimony:

"Mortgage interest rates are near record lows, but access to mortgage credit continues to be constrained. Also, many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices."

Allowing Home Affordable refi's to be more like an FHA Streamline refinance by not requiring an appraisal would also help stabilize home values by preventing additional homes from becoming distressed.  

These are highly qualified borrowers who want to keep their property (would prefer to sell but cannot) and who want to take advantage of low mortgage rates. It makes no sense to me that appraised values are factored in when the rest of transaction is strong.

This is a solution that could really help our housing recover.

Filed Under: The Fed - FOMC

Got Droid? Check out MY new favorite app: The Mortgage Porter

July 12, 2011 by 5 Comments

DSC00730 I'm pleased to announce the release of my first ap for smart phones, specifically Androids (I'm hoping to follow up with one for iPhone soon).

Currently* from this app, you can contact me or connect via Facebook. There's also a mortgage calculator, convenient links to my blog and favorite posts AND a button to start the preapproval process.

Just another way for us to keep in touch and for you to refer friends, family members or co-workers who are considering obtaining a mortgage for their home located in Washington.

*This is brand, spanking new and I'm sure we'll be tweaking it as time goes on. 

What features would you like to see?

Download: http://bit.ly/rhondaporter  

DroidAppMortgagePorter

 

Filed Under: Tech/Tools of the Trade

West Seattle Street Fair

July 9, 2011 by Leave a Comment

The West Seattle Street Fair (aka  West Seattle Summer Fest) is taking place right now (actually started yesterday) in "The Junction" on California Avenue.  If you've never been to the fair, it's a lot of fun, food, arts, crafts and music.  The fair ends tomorrow at 5pm and goes on until midnight tonight…so don't delay!

 

 

Filed Under: Events, Seattle

Voodoo Lilies from my Garden

July 6, 2011 by 2 Comments

Be thankful the photos in this post are not "scratch 'n sniff", voodoo lilies emit a very foul odor after blooming.

DSC00715

According to Paghat's Garden:

Northwest gardeners have reported them spreading quite wildly, & requiring no special attention of any kind. They spread by self-seeding & by bulb offsets. If the seedheads are not collected, they will eventually fall over in the garden, where beetles or ants cart them away, spreading the voodoo lily more distantly. The penultimate photo below shows one of the green seed cobs in August. The final photo shows the ripened cob in October, when the stalk has softened has toppled to the ground so insects will clean & disperse the seeds.

We've had these amazing plants slowly spread through our garden.

This Q&A from the Seattle Times recommends not planting these too close to your home, especially near dining areas or your doors or windows because of the smell and the insects that are attracted to the aroma (which only lasts a few days).

This isn't something you'll find in vase in my home! But I will tolerate the smell to adore their beauty.  I was just out in my garden and had to share this with you!

 

Filed Under: Just for Fun

Happy Independence Day

July 4, 2011 by Leave a Comment

DSC_0398 
Mortgage Master Service Corporation is closed today in observance of Independence Day.  With the beautiful sunny weather we're celebrating freely, I hope you and yours have a fun, safe and sane holiday.

 

Filed Under: Interest Rates

Should You Pay Your Mortgage Off Quicker

July 1, 2011 by Leave a Comment

Earlier this week, The Seattle Times published with tips for "paring down your mortgage" siting that many home owners are opting to pay off their mortgages quicker:

The portion of borrowers refinancing in January who took 15-year mortgages rose to 29 percent from 11 percent two years earlier, according to the most recent data available from CoreLogic, a real-estate information firm in Santa Ana, Calif. Mortgages with 30-year terms accounted for 52 percent of refinancings in January, down from 80 percent in January 2009.

The share of cash-in refinancings reached a record 44 percent in the fourth quarter, according to data from Freddie Mac dating to 1985. While the share fell to 21 percent in the first quarter as mortgage rates climbed, it was almost double the quarterly average over the past 26 years.

I've noticed a much healthier, financially responsible "attitude" with my clients over this past year. Instead of home buyers wanting to know "how much" they can buy, they want to know what a certain payment will qualify them for.  There's a definite trend where folks are buying less than what they could be preapproved for.  

Many are considering shorter terms, as the Seattle Times article mentions, including the 15 year and 10 year amortized mortgage (which is being heavily advertised on the radio).  I caution to make sure you have plenty of reserves if you opt for a shorter term mortgage…you can always pay shorten the term of a 30 year mortgage and have the flexibility of only making the 30 year amortized payment; but should you find yourself needing more cash flow in the future, you cannot make a 30 year payment on a 20, 15 or 10 year amortized mortgage.  And should you find yourself in a financial squeeze in the future, you may not qualify to refinance into a longer term.

30 Year Fixed:  4.625% (apr 4.790) with a principal and interest payment of $2057.

20 Year Fixed:  4.500% (apr 4.679) with a principal and interest payment of $2531.

15 Year Fixed:  3.750% (apr 3.995) with a principal and interest payment of $2909.

10 Year Fixed:  3.500% (apr 3.808) with a principal and interest payment of $3955.

The savings over the life of the loan is great…but if you're having to refinance to obtain cash back or to reduce your payment or if you're relying on your credit cards, you may want to seriously consider a longer term mortgage.  You can reduce the interest you pay by making additional payments towards your principal.

Cash-in refinances are continuing to be popular as many home owners are wanting to take advantage of the lower rates that are available with conforming and conforming high balance loan limits.  This has become more of a phenomenon with the loan limits set to be reduced from $567,500 to $506,000 as of October 1, 2011 in the Seattle area for both FHA and Conforming loans and possible reduced lower effective January 1, 2012.

Here's an example of the difference between current conforming high balance and jumbo mortgage rates with a 30 year fixed in greater Seattle:

Conforming High Balance loan amount of $567,500:  4.750% (apr 4.871) principal and interest payment of $2,960.

Non-Conforming Jumbo loan amount of $567,501:  5.375% (apr 5.486) principal and interest  payment of $3,178.

With a cash-in refinance, it's important to weigh the lost opportunity of the cash you're investing into your home (you may not have access to it for quite a while) along with the monthly savings of the refinance.

Adjustable rate mortgages are also gaining in popularity.  If you're not planning on retaining your home for more than five years, it's worth at least comparing the savings.  However if the idea of having a mortgage that will adjust in five, seven or ten years makes you uncomfortable, then you should stick with a fixed rate product.

10/1 ARM:  4.125% (apr 3.911). Interest rate fixed for 120 months with caps of 5/2/5 and a principal and interest payment of $1,930.  The highest the rate can adjust on the 121st payment is 9.125% and the lowest is 2.25%. 

7/1 ARM:  3.625% (apr 3.537). Interest rate fixed for 84 months with caps of 5/2/5 with a principal and interest payment of $1,852. The highest the rate can adjust on the 85th payment is 8.625% and the lowest is 2.25%.

5/1 ARM: 3.250% (apr 3.359). Interest rate fixed for 60 months with caps of 5/2/5 and a principal and interest payment of $1,714. The highest the rate can adjust to on the 61st payment is 8.250% and the lowest is 2.25%. 

If you have questions or are interested in obtaining a mortgage for a home located anywhere in Washington state, please contact me!  Nothing makes me happier than helping my readers.

Rates quoted above are effective as of July 1, 2011 at 11:45 a.m. and may change at anytime. Rates are based on 740 or higher credit scores with an 80% loan to value for a purchase or rate-term refinance in Washington.

Filed Under: Interest Rates, Refinance

Dramatic Changes proposed to USDA Rural Loans effective October 1, 2011

June 29, 2011 by 3 Comments

Beginning October 1, 2011, USDA Rural Loans may an have annual mortgage insurance (like FHA, paid monthly) and will reduce the upfront guarantee fee on purchases from 3.5% to 2%.  RD AN No. 4551 states:

Beginning October 1, 2011, it is anticipated that all purchase loans transactions will be charged (1) an up-front guarantee fee equal to 2% of the loan amount and (2) an annual fee of 0.3% of the unpaid principal balance.

Unlike FHA insured loans where the annual mortgage insurance premium ceases after 60 payments and the principal balance reaches 78% loan-to-value based on the original sales price or appraised value, USDA's annual fee NEVER terminates. It will remain a part of the monthly payment until the USDA mortgage is paid off.  The annual fee will be reduced each year as it is calculated annually from the principal balance. 

Here's a comparison: 

Currently, if someone was using a USDA zero down loan to purchase a home in Duvall for $300,000, their loan amount would be $310,500 (sales price plus 3.5% for the upfront guarantee fee).  Based on current rates of 4.375% (apr 4.786), their payment (excluding taxes and home owners insurance) would be $1550.28.

Effective October 1, 2011 and assuming mortgage rates just happen to be the same, the loan amount would be $306,000 (sales price plus 2% for the upfront guarantee fee) creating a principal and interest payment of $1,527.81 PLUS an estimated monthly premium of $75.82 = $1,603.63.  An increase of $53.35 per month!

Why would someone even consider having a USDA mortgage after October 1, 2011? Well for one, it's one of the few "zero down" mortgage programs available for homes that are located in a designated rural area (like Duvall, Gig Harbor or Maltby).  If the appraisal comes in higher than the sales price, borrowers may be able to finance closing cost… there are some perks to this unique program and it may be worth your consideration if you're income meets the guidelines and you're buying a home in a rural community.

Questions about USDA or other types of mortgage programs for homes located in Washington State? Contact me, I'm happy to help!

Filed Under: USDA
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