You might not think there are many options for you when looking for a home loan. You will be surprised to know that there are still ARM (adjustable rate mortgages) loans if you need them. The fact is that most ARM loans do not have better interest rates than fixed loans currently. If ARM Loans don't have lower interest rates then you are stuck with the 30 year fixed, correct? No. While rates are back down to historical lows, many customer are taking advantage of shorter loan terms like 15 and 20 year terms. These shorter terms offer slightly lower rates, but the biggest benefit is the savings on the "Total of Payments". Below I compare a $200,000 loan with an interest rate of 5.25% 30 year fixed mortgage and a $200,000 loan with an interest rate of 5% 15 years fixed mortgage.
Loan amount $200,000. 30 year fixed rate 5.25% Payment $1104.41
15 year fixed rate 5.00% Payment $1584.59
The Total of Payments is the payment x the terms of the loan.
30 year 360 payments x $1104.41 = $397,587.67
15 year 180 payments x $1581.59 = $284,686.20
The 15 year mortgage will save you $112,901.47 by the end of the loan term!!! I bet that will help you with retirement or putting the kids through college. The monthly difference is $477.18. One average car payment. Would you rather have a new car every 4 years or have your home paid off in 15 years? Having a home paid off in 15 years should be the American Dream. 15 year mortgages increase equity faster because you are paying down principal much faster. The first payment made on the 30 year mortgage above, only $240.00 goes towards principal. On a 15 year $748.00 goes towards principle!!! It is great to see more of your hard earned money going to pay off debt, not to interest to the mortgage company.
Many times home owners use the equity from their property to pay off debt and lower their monthly out going bills. While this is the cheapest way to consolidate debt (it may also be tax deductible), many home owners only look at the 30 year mortgage. The longer the term, the lower your payments are going to be. Assuming you can afford to consolidate your debt with a home loan, you should look at shortening your term. While it may look and sound good to save $500 or more monthly, does the BIG PICTURE of SAVING $112,901.47 in the example of the $200,000 mortgage LOOK and SOUND BETTER?
Please ask your Loan Officer about these options. There is not one answer for all clients, but shorter term loans should be discussed. Ask for a few Amortization Tables to compare the different loans you are looking at. You will be impressed with the savings a shorter term mortgage will provide.
Thursday, December 18, 2008
Tuesday, December 16, 2008
Canadian Buyers in Sunny Arizona, can they get Financing?
Can Canadian Buyers in Sunny Arizona get Financing?
Since today's (December 16th) temperature was in the 50's, many people north of the border know Arizona is the place to be during the winter months. Because of today's home values in Southern Arizona, many Canadians have decided to purchase a 2nd home here. Many of these potential buyers do not realize that financing is available from US mortgage companies. Banks have a variety of programs for Canadian buyers to finance these 2nd homes. One option is the 30 year fixed rate mortgage with rates as low as 6.25%. With rates this low, it is smarter to buy a 2nd home instead of renting or leasing homes for the winter months.
In the past, many of the loans available to foreign borrowers were ARM’s (adjustable rate mortgages). There are many great programs for those who have an ARM loan currently and want to refinance into a fixed rate. Today is a great time to take advantage of these low rates and wonderful financing options. Check with your loan officer today to get pre-approved for one of these great loans.
Since today's (December 16th) temperature was in the 50's, many people north of the border know Arizona is the place to be during the winter months. Because of today's home values in Southern Arizona, many Canadians have decided to purchase a 2nd home here. Many of these potential buyers do not realize that financing is available from US mortgage companies. Banks have a variety of programs for Canadian buyers to finance these 2nd homes. One option is the 30 year fixed rate mortgage with rates as low as 6.25%. With rates this low, it is smarter to buy a 2nd home instead of renting or leasing homes for the winter months.
In the past, many of the loans available to foreign borrowers were ARM’s (adjustable rate mortgages). There are many great programs for those who have an ARM loan currently and want to refinance into a fixed rate. Today is a great time to take advantage of these low rates and wonderful financing options. Check with your loan officer today to get pre-approved for one of these great loans.
Sunday, December 14, 2008
Being Ready to Lock that Low Rate in with a Target Rate
Being Ready to Lock that Low Rate in with a Target Rate
As you have seen over the last year, the mortgage rates have been all over the place. I had a customer call me last week to get him locked into a rate that he saw on TV. I told him that the rate he wanted was not available right then, but I would take his application and make sure he qualified for the refinance he wanted. He told me to just call him when rates dropped again and he would do it then. I explained to him that earlier that morning the mortgage rates opened low and went down quickly. By 10:30 AM, the market had changed directions and rates went up. I told my customer that I track the rates and I know what the market is doing and when it changes, I am on top of it. I also told him that I don't lock clients without knowing that they are qualified borrowers. I told him I would get him pre-approved and we would set a "Target Rate." The Target Rate is a rate that the borrower is expecting and is committed to. Once that target rate is available and he was pre-approved, I would lock in his rate and we could move forward. The customer understood that there may only be a short window where that rate is available and it is impossible to reach all my clients to get them pre-approved for that low rate.
That client and I set a target rate and he worked with me to get pre-approved. The Target Rate we set was a rate that we could expect to see soon. Two days later, I called the borrower to inform him that we hit his Target Rate. I let him know that we locked his rate and that we would close his loan in 30 days or less. The customer was very happy that I secured him a great low rate.
I strongly recommend setting a "Target Rate" with your lender when refinancing. With all the volatility in the market right now, it is has never been more important to be able to react at a moments notice to secure the low rate you want.
As you have seen over the last year, the mortgage rates have been all over the place. I had a customer call me last week to get him locked into a rate that he saw on TV. I told him that the rate he wanted was not available right then, but I would take his application and make sure he qualified for the refinance he wanted. He told me to just call him when rates dropped again and he would do it then. I explained to him that earlier that morning the mortgage rates opened low and went down quickly. By 10:30 AM, the market had changed directions and rates went up. I told my customer that I track the rates and I know what the market is doing and when it changes, I am on top of it. I also told him that I don't lock clients without knowing that they are qualified borrowers. I told him I would get him pre-approved and we would set a "Target Rate." The Target Rate is a rate that the borrower is expecting and is committed to. Once that target rate is available and he was pre-approved, I would lock in his rate and we could move forward. The customer understood that there may only be a short window where that rate is available and it is impossible to reach all my clients to get them pre-approved for that low rate.
That client and I set a target rate and he worked with me to get pre-approved. The Target Rate we set was a rate that we could expect to see soon. Two days later, I called the borrower to inform him that we hit his Target Rate. I let him know that we locked his rate and that we would close his loan in 30 days or less. The customer was very happy that I secured him a great low rate.
I strongly recommend setting a "Target Rate" with your lender when refinancing. With all the volatility in the market right now, it is has never been more important to be able to react at a moments notice to secure the low rate you want.
Tuesday, December 9, 2008
It’s not the lenders!!! It’s the Private Mortgage Insurance Companies...
Assume you are doing a Conventional loan over 80% of the value of your house. You are going to need mortgage insurance on your loan. Did you know that you can receive an approval from your loan officer? You can even receive an approval from the underwriter. If the Private Mortgage Insurance Company (PMI) does not feel you meet their guidelines, your loan cannot and will not close. Mortgage insurance is insurance for the mortgage company, not you. You pay mortgage insurance to protect the lender in the event you default on your loan. Conventional lenders require mortgage insurance on any loan that you do not have at least 20% equity in. If you are borrowing more than 80% of the value of your property, you will need to have mortgage insurance.
PMI companies have their own guidelines and requirements that are on top of the lenders guidelines. PMI companies are just like any other insurance. They pay for losses. Over the last 2 years mortgage insurance have become even more restrictive because of the large amount of losses in the mortgage industry. 12 months ago if a loan officer received an approval from a lender, getting mortgage insurance was not an issue. Today loan officer have to start with the PMI companies guidelines to ensure the PMI companies will approve the loan. Then they have to see if the lender will accept the loan.
Conventional lending volumes have gone down dramatically this year. PMI companies have even labeled certain states and counties as declining market areas. These areas are where the PMI companies believe the values of properties are declining state wide or county wide. In these areas the PMI companies are even more restrictive. Some of the limits they enforce are No Cash out loans over 80% loan to value. A minimum of 10% down payments on purchases, and minimum FICO scores to 720. This makes it difficult to lend Conventional loans.
What are the solutions? There are several things that can help you to avoid PMI problems. Take advantage of FHA financing. FHA loans allow for Cash Out refinances up to 95% loan to value. FHA allows for 3% down payments with credit scores above 580. FHA loans have very competitive mortgage insurance premiums that do not come from PMI companies. FHA mortgage insurance is backed by the Federal Government's Housing and Urban Development Department (HUD). Improve your credit score. Work with a loan officer who has all the tools to help you to improve your credit scores. It will help you today and down the road.
PMI companies have their own guidelines and requirements that are on top of the lenders guidelines. PMI companies are just like any other insurance. They pay for losses. Over the last 2 years mortgage insurance have become even more restrictive because of the large amount of losses in the mortgage industry. 12 months ago if a loan officer received an approval from a lender, getting mortgage insurance was not an issue. Today loan officer have to start with the PMI companies guidelines to ensure the PMI companies will approve the loan. Then they have to see if the lender will accept the loan.
Conventional lending volumes have gone down dramatically this year. PMI companies have even labeled certain states and counties as declining market areas. These areas are where the PMI companies believe the values of properties are declining state wide or county wide. In these areas the PMI companies are even more restrictive. Some of the limits they enforce are No Cash out loans over 80% loan to value. A minimum of 10% down payments on purchases, and minimum FICO scores to 720. This makes it difficult to lend Conventional loans.
What are the solutions? There are several things that can help you to avoid PMI problems. Take advantage of FHA financing. FHA loans allow for Cash Out refinances up to 95% loan to value. FHA allows for 3% down payments with credit scores above 580. FHA loans have very competitive mortgage insurance premiums that do not come from PMI companies. FHA mortgage insurance is backed by the Federal Government's Housing and Urban Development Department (HUD). Improve your credit score. Work with a loan officer who has all the tools to help you to improve your credit scores. It will help you today and down the road.
Rates Under 5% are around for another day!!!
With the rally yesterday many of us in the mortgage business expected that there would be a pull back in the Mortgage Bonds and we would see slightly higher rates today. Good for everyone we were wrong. Rates are holding strong and currently the best rate for the best loans are slightly under 5% (30 year fixed). If you do not have your loan application in with your lender yet, call them right now and get your loan pre approved and be ready to lock. I don't expect this window of under 5% to be around forever so you must take advantage of this right now. Remember lenders will not lock in your rate until you are pre approved.
Monday, December 8, 2008
4.5% rates Are they really comming?
The word on the street is the Federal Government is going to make mortgage companies offer 4.5% fixed rate mortgages soon. I saw this in the newspaper and I read it on the internet. Nothing has officially come out about rates dropping to 4.5% from the Government. The thought process behind this is if rates were 4.5% then potential homeowners would be motivated to get off of the fence and start buying homes. It was also mentioned that the 4.5% rate may be extended to homeowners that want to refinance. This could boost consumer spending, which is a major component of U.S. economic activity.
I wonder where this money is coming from. The Fed may start selling treasury notes at 3% to fund this program. The Fed would keep the 1.5% as a profit. One of my major concerns is if this is going to be a one-time program. If it is not, then there could be a problem for potential and current homeowners who are looking to purchase/refinance. By waiting around and not buying or refinancing, due to waiting for the rates to drop, they would all apply for mortgages at once. This would create a log jam in the mortgage system that would make it almost impossible to efficiently fund home loans.
I wonder where this money is coming from. The Fed may start selling treasury notes at 3% to fund this program. The Fed would keep the 1.5% as a profit. One of my major concerns is if this is going to be a one-time program. If it is not, then there could be a problem for potential and current homeowners who are looking to purchase/refinance. By waiting around and not buying or refinancing, due to waiting for the rates to drop, they would all apply for mortgages at once. This would create a log jam in the mortgage system that would make it almost impossible to efficiently fund home loans.
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