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So you're going to refinance are you?

So you are refinancing your home are you? Here is a look at adjustable rate mortgages as opposed to fixed rate loans.

SO YOU’RE GOING TO REFINANCE ARE YOU?
Which is better thirty year fixed or the Adjustable Rate Loan?
Once you have decided to refinance, and come to the conclusion that you have sufficient equity to do so, let’s take a look at some of the different options available to us; the good and the not so good.
First off I want to tackle the issue of arms versus fixed rate loans. Let’s go over the pros and cons for two to five year arms. Here are the pros.
· Adjustable Rate Mortgages offer a lower rate over a specified time limit, generally from 2-5 years.
· The rate is often a percent lower than that of the fixed loan so payments can be significantly lower.
· Because the rate is so much lower a client who could not qualify for a fixed rate loan may qualify for an adjustable rate mortgage .
Now here are some of the disadvantages to an adjustable rate mortgage.
· After the fixed period of the loan is over the client faces a possible rate hike that may make paying loan payments impossible.
· After getting used to a lower payment it’s hard to adjust up.
· You may find yourself in a situation where you have to refinance even if the timing is bad for you and your situation
· Beware of the two year arm with a three year prepay.
An adjustable rate mortgage does has it’s advantages if the circumstances are right. If you are getting buried in credit card debt and unable to afford the monthly bill, refinancing your mortgage and paying off the debt may just be what the doctor ordered. Now you debt is paid off and you have one lower payment to make. If you cannot qualify with a 30 year fixed try a two year arm. The interest rate and payments are going to be significantly lower, and now, affordable.
No that you have wrapped up your credit card and high interest debt in the new loan you have two or three years of making good payments to boost your score up. If done right, that is all you will need to have a significantly higher score. Next time around with a new and improved report you will qualify for a thirty year fixed and be done with it.
Now as far as the cons go, there are a number of issues here that can turn your mortgage experience into a nightmarish one at best.
Now fast forward two years and it’s time to refinance. You may not be ready for it, and interest rates may make this impractical, but what choice do you have. You are facing having an adjustable rate mortgage, and one this is going to just keep climbing. This could be your nightmare.
Perhaps you were one of the ones to take advantage of a newer lower rate and purchased an auto that previously you could not have afforded. Your lifestyle may have undergone a total change and now you may have a hard time adjusting to a new payment that could be higher than you ever had. Again, another nightmare.
You might be one of the ones finding themselves in a loan that they could no longer afford. While you were able to do fine with the seven hundred dollar payment you have been enjoying, the new thousand dollar one may not work well with your current situation.
And finally, beware the two year arm that is saddled with a three year prepay. If you are in one of these loans chances are it was not disclosed, or just hurried over so you didn’t notice that small detail. Now, not only are you going to have to refinance at a higher rate, you also are getting hit with a prepay of six months interest which can rapidly add up to 12-15 thousand dollars, and in some cases more.
So, in short, If you are considering an adjustable rate mortgage you would do well to sit down and take a look at your finances. If getting a lower rate is the only reason to take an arm, you miay want to investigate further.

Good Luck and happy refinancing.

The Nightmare on Mortgage Street

Whatever came of all those people jumping on the pick-a-pay mortgage loans? Here is a brief look at them and what may have gone wrong for millions of americans with these loans.

In the heyday of the housing boom there emerged a loan program that soon became the thorn in the side of every lender that did not have some form of it. In the beginning it was very tough to find fault with the product until the cracks started showing in the foundation of the housing industry.
The program I am referring to is the option ARM loan, and on the surface it seemed like the dream loan, but before you get too excited about it lets put it under the microscope here.
A borrower is given four different payment choices when signing up for this loan. The first is the minimum payment, which doesn’t’ even cover all the interest, and interest only payment, a payment that pays the loan off in thirty years and one that pays it off in fifteen years. Most borrowers, 65% of them, pay only the minimum payment. Borrowers can continue to do that for five years or until their loan balance reaches 110% to 125% of the original loan amount. Anyone see a problem here?
After that borrowers are required to pay a new rate that will have them catching up on the part of the loan that is underwater. In fact on average a borrowers payment increases 65%. Now how many of you out there are fine with an instant 65% increase on your mortgage? I’m going to go out on a limb here and say no one. Defaults on those loans are expected to double.
Now let’s just speculate for a minute on why so many people get into trouble with these loans. And again, this is purely speculation but I think you will agree with me on it. A majority of borrowers who choose these loans are in some kind of stress regarding their house note, and are looking for a way to get relief by reducing their loan payments. Many will have skyrocketing credit card debt that combined with a high mortgage payment has put them in danger of bankruptcy.
For these people the pick-a-pay plan is a Godsend. They simply roll that credit card debt into the new loan and their new low monthly payment doesn’t even break through a grand, providing they choose the minimal payment. Now a struggling family actually has four or five hundred dollars left over every month and they give into the temptation to buy that new Escalade they have been swooning over. In other words they adjust their lifestyle to the tune of five hundred a month instead of making the full payment that they used to pay on the old loan.
Now let’s fast forward five years, five years of counting on that extra five hundred a month, and let’s put a stop to it. Not only are we going to stop that nice monthly wind fall, but we are going to require them to start making up the short fall in the loan, to the tune of a 65% increase. Now you don’t just have a problem here, you have a disaster.
During the housing boom option ARM’s were the only way some people could afford these wildly escalating home prices, and borrowers counted on their homes appreciating enough to be able to refinance out of the loan before reset. The problem with the high priced communities where these loans are, home values have fallen 20-30% and homeowners are finding themselves underwater to the tune of 200,000 or more and unable to sell or afford the new payment.
Now what was once the darling of the mortgage industry has now become the Nightmare on Elm Street. Once the homes are underwater borrowers are gonna have a tough time refinancing them as borrowers are going to close their coffers to those so far in debt. This is a hard lesson in the housing industry that hopefully will not repeat itself and in the meantime hopefully y Obama and his loan modifications can step in and help some of these people out.
In the meantime good luck and happy reading.

Mortgage Demands Fall in Latest Week

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending October 23, 2009. The Market Composite Index, a measure of mortgage loan application volume, decreased 12.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.8 percent compared with the previous week, which included the Columbus Day holiday.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending October 23, 2009. The Market Composite Index, a measure of mortgage loan application volume, decreased 12.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.8 percent compared with the previous week, which included the Columbus Day holiday.

The Refinance Index decreased 16.2 percent from the previous week and the seasonally adjusted Purchase Index decreased 5.2 percent from one week earlier. The unadjusted Purchase Index increased 4.8 percent compared with the previous week, which was a holiday shortened week, and was 15.4 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is down 3.1 percent. The four week moving average is down 1.4 percent for the seasonally adjusted Purchase Index, while this average is down 4.1 percent for the Refinance Index.

The refinance share of mortgage activity decreased to 62.3 percent of total applications from 65.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.9 percent from 6.4 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.04 percent from 5.07 percent, with points increasing to 1.25 from 1.13 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

It's no surprise that refinancing activity is off. Mortgage rates have risen with the rate on a 30-year mortgage refinance now at 5.104%. It was below 5% two months ago. Everyone who would have refinanced already has.

I spoke to a mortgage broker last night and he told me that the people he speaks to now don't have enough equity in their homes. Most are stuck and can't refinance even if they wanted to.

The Mortgage Consultant

Here is part three of careers in the financial industry. This should shed enough light on the job of a mortgage person so you can make an informed choice if you are looking for a career in this arena. Good luck and happy choosing.

WHAT DOES MY MORTGAGE GUY DO ALL DAY?
A career in the mortgage business
If ever you have ever thought of becoming a Mortgage Consultant, or just wondered what yours does all day, then sit down and take a look.
First off, I am a former Mortgage Consultant, and have worked in one of the worst ‘houses on the block’, to one of the best, so I am writing this from the perspective of an insider in the business.
People often assume I was a broker when I told them where I worked, or told them I was a loan officer. The two are similar, yet quite different. A loan officer does not need to have a real estate license as he is covered by someone or organization, like Bank of America, for example. A loan officer originates loans only for the company he works for and does not shop your deal around to different lenders.
Unlike the stockbroker which we covered in the previous two articles a loan officer keeps a little closer to banker’s hours. A loan officer is akin to a Jack of all trades and will know about every step in the process, and be familiar with each person’s jobs whose involved in funding your loan.
The first task for any LO (Loan Officer) is to originate loans, and that can be from the dreaded cold calling to networking with real estate professionals to snail mail campaigns. And once in awhile the phone rings and there is a loan on the other end of the line.
The toughest part of the deal is trying to figure out what loan program is the best fit for your situation. When you are dealing with prime borrowers this is usually fairly simple. When you are dealing with subprime borrowers it’s not so easy. You have to be very determined, creative, and knowledgeable to find a program that will fit with your borrowers needs, despite his credit challenges, for example.
If a deal is packaged badly and presented poorly to the underwriters it may get turned down. Then someone else could take that exact deal, pre package and present it and if passes with flying colors. Bottom line, the loan officer, or mortgage consultant, has to be intimately familiar with his/hers company guidelines, otherwise a fairly high percentage of their loans will get turned down when they could have easily gone through and funded.
Speaking of company guidelines, probably the area that trips up new LO’s is calculating the rate from the often complicated rate sheets. Nothing will kill a deal faster than a situation where the loan needs to be re-priced and the borrower will have to accept a new higher rate. You would be surprised though at how many borrowers stick around if you are upfront and honest about your mistake. They know not everyone is perfect one hundred percent of the time.
Once the loan is ‘in the pipe’ every aspect of the process has to be tracked by the LO to make sure the process doesn’t held up for any reason. Things that can trip up your deal can be issues with documents (maybe something was unreadable), to problems with the appraisal or the appraiser himself.
As a loan officer you have to pick the deals you are going to do carefully. One can only balance so many loans at a time so if you choose the wrong deals and they fail to fund; you have just worked for free that month. Since the job is a sales job, your pay is 100% commission and there is no other way to generate income outside of closing your loans.
Both careers, that of a stockbroker and a loan officer can be challenging and very rewarding, not to mention lucrative. While it is infinitely more difficult to make it as a stockbroker or financial advisor, the payoff is a much higher paycheck, and the freedom to be your own boss, set your own hours, take off when you like, and make as much money as you are willing to work for.
Advantages of being a loan officer, or mortgage consultant, is you have only a couple different products to keep track of, and they do not change from day to day like stocks or many of the different type of investments stockbrokers have to stay on top of. This is a much more relaxed environment than that of a brokerage office where the tensions run high.
Bottom line, only you know what you are suited for and hopefully I have given enough information for you to make an educated decision about the two options.
Good Luck and happy choosing.

Refinancing Your Home - A Second Look at the Mortgage Industry

Rates are still low, you’ve got equity in your house, and you’re finally ready to turn that dingy basement of yours into an apartment; let’s talk.
First of all, make sure you don’t have any issues in your house that will likely kill the deal when the home is appraised. Let’s start outside. While you don’t have to have a landscaped yard, you don’t want it to look like a junkyard either. Maybe you like to tinker with cars in your spare time. That’s okay too but maybe you want to move some of those cars to somewhere else before the appraiser comes. You don’t want your lot to look like a used car lot, or a scrap pile either. Those kinds of things will bring the value down some, and it could make the appraiser wonder if there is a business being conducted on the property. If this is an income property, well that’s a whole other animal for another article.
Make sure there are no cracked windows in the primary residence. You may be able to get away with a cracked window in the stand alone garage, but you don’t want any in your home. Take a look at the roof. Do you have a lot of missing shingles? If you’re not careful you will have an appraiser snooping around for a leak and you may be required to fix the roof.
Let’s talk about the inside of the home. When I was refinancing homes I always asked about mold or mildew. I don’t know any lender that will refinance a home with mildew on the walls. I remember doing a refi for a gentleman in Texas who failed to mention a mildew problem, even after I asked him. Apparently he though the appraiser I sent out would be blind as well.
The deal got turned down as soon as the underwriters saw the appraisal. They got the appraisal first and forwarded me a couple pictures. The house had horrible mildew stains where the ceiling met the walls.
As it turns out the man had a huge leaky roof problem. So, if you have water marks, mold or mildew stains do yourself a favor and take care of the problem first.
Check the plumbing under the sink in the kitchen and the bathrooms. Lenders shy away from leaky pipes. Just get the pipes replaced and it will save you from the headache of the loan being turned down. Or having to pay the appraiser to come back and look at the house again after you fixed the leaky pipe problem.
Carpets can be an issue as well. Your carpet does not need to be new, but ones with holes worn through are going to be a problem. Right now you may be saying to yourself, why is this guy bringing this stuff up? It’s obvious. Yes, it is obvious, but I cannot tell you how many times I ran into borrowers that didn’t think this was obvious at all. My biggest pet peeve in the industry was loans that got turned down at the appraisal stage. Most of the problems could have been eliminated had the borrower told me first about the issues in the home.
Look at the tile flooring. Again, doesn’t have to be new, just no holes worn through the vinyl, or cracked tiles please. Make sure your toilets are in working order. I know of some appraisers who go through the houses they appraise, and turn on all the faucets and flush all the toilets. Not everyone does it but you never know if yours will.
Make sure your lights have working bulbs in them. No, it’s not a deal breaker but you don’t want the appraiser to decide to be nit- picky all of a sudden. The best kind of appraisers are the ones who spend ten minutes in the house, snap a few shots, measure a room and leave.
I think I will leave it at that, and the next installment we will get into comps and trying to figure out the value of your home; not always an easy thing to do.

Good Luck and Happy Refinancing.

Get the best mortgage refinancing rates.

Average 30-Year Mortgage Rate Rises Above 5%

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.00 percent with an average 0.7 point for the week ending October 22, 2009, up from last week when it averaged 4.92 percent. Last year at this time, the 30-year FRM averaged 6.04 percent. So mortgage interest rates are almost 100 basis points below what they were last year.

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.00 percent with an average 0.7 point for the week ending October 22, 2009, up from last week when it averaged 4.92 percent. Last year at this time, the 30-year FRM averaged 6.04 percent. So mortgage interest rates are almost 100 basis points below what they were last year.

Shopping around though, you can still find a 30-year mortgage under 5% if you hasve good credit. The best 30 year mortgage rate in Massachusetts (where I live) according to the BestCashCow mortage rate tables has an APY of 4.980% with fees of $1,135.

The 15-year FRM this week averaged 4.43 percent with an average 0.6 point, up from last week when it averaged 4.37 percent. A year ago at this time, the 15-year FRM averaged 5.72 percent.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.40 percent this week, with an average 0.6 point, up from last week when it averaged 4.38 percent. A year ago, the 5-year ARM averaged 6.06 percent.

The one-year Treasury-indexed ARM averaged 4.54 percent this week with an average 0.6 point, down from last week when it averaged 4.60 percent. At this time last year, the 1-year ARM averaged 5.23 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

"Following bond yields, long-term mortgages rates edged up slightly this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Although rates for 5/1 ARMs and traditional 1-year ARMs are around half a percentage point below 30-year fixed mortgages, consumers appear to be seeking the stability of fixed-rate mortgages. According to the Mortgage Bankers Association, ARMs averaged only about 6 percent of the number of mortgage applications in September and October thus far.

"The housing market is still trying to recover in the second half of the year. The Federal Reserve reported in its October 21st regional economic review that housing market conditions improved in recent weeks, primarily from a pickup in sales of low-to medium-priced houses. However, residential construction activity was reported to remain weak in most areas. New construction of single family homes rebounded in September, rising at a 3.9 percent annual rate, but did not erase all of the declines set in August, based on figures released by the Department of Commerce. Moreover, homebuilder confidence, as measured by the National Association of Homebuilder's Housing Market Index, fell slightly in October and marked the first decline since January of this year."

U.S. mortgage demand drops, supply caps improvement

Provides an overview of the mortgage market and some analysis regarding key rates. http://www.reuters.com/article/businessNews/idUSN1612481020090916

NEW YORK (Reuters) - Demand for U.S. home loans fell by more than 8 percent as fixed mortgage rates rose last week in a banking period shortened by the Labor Day holiday, the Mortgage Bankers Association said on Wednesday.

Total applications were nonetheless at one of the highest levels seen since early June, with borrowers still eager to take advantage of the federal first-time home buyer tax credit before the program closes at the end of November.

Borrowing costs stayed relatively low, which continues to foster demand for potential buyers. But there is growing concern about whether housing can sustain its recent momentum once some key government rescue programs end.

As a result, the real estate industry is pressing Congress to extend the tax credit to all buyers and increase the size to $15,000 from $8,000 in a program now set to end on November 30.

Another concern is the end-2009 deadline for Federal Reserve mortgage-related debt purchases of up to $1.45 trillion -- aimed at keeping loan rates down.

"If the first-time home buyer tax credit expires at the end of November and if the Federal Reserve were to significantly scale back their mortgage (bond) purchases early in 2010, the housing market could hit a wall very quickly," said senior Bankrate financial analyst Greg McBride in North Palm Beach, Florida.

"I don't think that the Fed is going to do anything rash," he said. "I think they will slowly back away from the table so as to keep a lid on mortgage rates."

RATES EDGE UP

Average 30-year loan rates rose 0.06 percentage point to 5.08 percent last week. The rate was up from the record low of 4.61 percent set in March, but down from 5.82 percent a year ago, the industry group said.

The seasonally adjusted mortgage applications index fell 8.6 percent in the week ended September 11 to 592.8, driven by a 10.3 percent drop in its purchase applications index and a 7.4 percent slide in refinancing demand.

These figures were adjusted to account for Labor Day.

Housing market upside is limited by a supply of unsold homes inflated by foreclosures, industry executives and economists say,

"We still have a lot of inventory in the marketplace and that is continuing to put pressure on pricing, but pricing has come down to a level that has really opened the marketplace to a lot more buyers," said Tom Kunz, chief executive of Century 21 Real Estate in Parsippany, New Jersey.

"We need to stimulate the move-up marketplace because there's too much inventory out there," for first-time buyers to absorb, he said.

A 26-year high in unemployment and wage cuts have added to the hardships in housing, forcing many new foreclosures that further swell housing inventories.

Job loss and underemployment spread the pain in housing from the subprime sector, where borrowers often only could afford initial payments with exotic and risky adjustable-rate loans, to "prime" borrowers that favor fixed-rate mortgages.

For the first eight months of the year, 69 percent of homeowners who turned to national nonprofit Consumer Credit Counseling Service of Greater Atlanta for foreclosure prevention help had fixed-rate loans. That was up from 53 percent in the same period last year.

"The housing recovery will be constrained by lingering excess supply," Joshua Feinman, chief economist at Deutsche Bank's DB Advisors, said in a report. "The scars from this crisis will likely keep households and financial intermediaries cautious for some time."

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