NEW YORK (CNNMoney.com)

 

http://money.cnn.com/2010/01/07/real_estate/last_chance_refinance/index.htm -- If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.

Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.

 

"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.

While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.

Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.

A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.

But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.

As Treasurys go . . .

Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.

The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.

Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.

Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.

The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.

That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.

Economy bouncing back

For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.

A recovering economy also boosts corporate profits, making stocks a better bet for investors.

"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."

Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.

After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again.

Who Owns My Mortgage?

by Dana Bain

Find out if Fannie or Freddie owns your mortgage.

 Feds new refinancing program may be the answer for people with less than 20 %equity.

Finding out if federally owned mortgage giant Fannie Mae or her brother, Freddie Mac, owns your mortgage has become important, because only their loans are eligible for the feds' new refinancing program for people have less than 20 percent equity.

Now, it's easy.

Most people don't know who owns their mortgage, because the company that originates your loan often continues to collect the monthly payments and send out statements after selling it to Fannie, Freddie or other investors.

Fannie Mae Loan Lookup 

http://loanlookup.fanniemae.com/loanlookup/

Freddie Mac Lookup

https://ww3.freddiemac.com/corporate/index.html

The refinance plan, part of the new Making Home Affordable program, serves people whose Fannie or Freddie loans are for 80 to 105 percent of their homes' value.

At first, officials said the only way to find out if Fannie or Freddie owned their mortgage was to call their loan servicer. Now, Fannie and Freddie have look-up pages.

Once you hopefully find out if in fact either Fannie or Freddie Mac owns your mortgage call 800-480-0545 or 978-422-2311 to make application and take advantage of refinancing at some of the lowest mortgage rates in history before its to late.

Dana Bain

Premiere Mortgage Services Inc.

www.BainMortgage.com

Why Refinance?

There are lots of reasons you might want to refinance, but most people fit into one (or more) of the basic four categories. Most people want to reduce their monthly payments; some want to consolidate outstanding debt, such as combining a first and second mortgage into a new first mortgage; some want to tap built-up equity in their homes, and some just want to get out of a mortgage product that they don't like, or that's costing too much -- going from an ARM to a fixed rate mortgage, for example.

Whatever group or groups you fit with, there are certain rules that you must follow to reach the goal desired. Straying from some of these basics can end up not only costing time, but could end up costing more money in the future.

2% Rule of Thumb?

The traditional refinance rule of thumb -- that you must get an interest rate at least 2% below the interest rate you currently have -- is often wrong. Why? Waiting for a two percent difference from your rate to show up in the marketplace can actually cost you money. For some people, as little as one-half of one percent can be enough, if all other factors fall into place. In addition, since ARMs are priced at below-market rates, it's almost always possible to get that 2% spread -- though you may or may not want to. The only way to determine whether refinancing is for you is to go about it the right way: by analyzing the time and the cost factors.

What Is Your Time Frame?

What is your time frame? Simply put, it's how long you plan on holding this mortgage, although it can be more complicated than that. You might have a product that demands refinancing -- like a balloon mortgage -- your time frame is only until the balloon period runs out. But, if you don't have to refinance, your time frame can be as long as you plan to stay in the home you're in. When determining your time factor, it's crucial to be honest with yourself, since the time factor will determine if and when you begin to save money. It's a fact that refinancing can cost a considerable amount of money, so you'll want to be as certain as possible of your time frame. For example, is it likely that your employer will relocate you to another city, or that you'll change jobs soon? Do you have a physical condition that could require you to move?

Evaluating all possibilities is vital, but only you know what your time frame will be.

More or Less Mortgage?

One other factor involved in refinancing your mortgage: how much money you'll need or want to borrow. Most lenders will let you borrow around 80% of your home's current appraised value. Some will allow more, if you're simply refinancing your existing loan. But, if you're looking to tap equity, known in the mortgage industry as a 'cash-out refi', you'll probably find that it's less than 80%. In many cases, cashing-out will mean that you'll have a larger mortgage balance than before, with possibly a higher monthly payment -- and you'll have to qualify for that new mortgage.

Another consideration with a cash-out refi: you might not be able to get that nice low rate you've seen, if your mortgage amount will be above the 'conforming' loan amount. Conforming loans are sold to large secondary market investors -- mostly to Fannie Mae and Freddie Mac -- and since they buy so many, the rates are often lower. However, loans above the conforming limit, known as 'jumbo' loans, often have interest rates as much as 1/2% higher than conforming, since they are bought and sold on a much smaller scale. This is also known as the 'jumbo premium'. In short, if you have to or want to take out a jumbo mortgage, be prepared to pay more for it.

Cash-out Refi or Home Equity Loan?

If freeing up cash in your home is what you'd like to do, there's a way to do so, even without refinancing: taking a home-equity loan. Home equity loans can be a viable alternative to a cash-out refi, although they are not without their own set of risks. Most Home Equity loans are of the adjustable-rate, revolving 'line of credit' type, and work much like a credit card does, and lenders will generally offer you as much as 75% of the equity in your home (the appraised value less the balance of your first mortgage). Most lines are pegged to the Prime rate plus a margin, but be careful -- most don't have per-adjustment interest rate caps, and some have lifetime caps of as much as 25%. There are fixed rate home equity loans available too, and they function much like any first or second mortgage does, but will cost you more than a line of credit.

Closing Costs

Now that we know why you want to refinance, how long you're planning to hold the mortgage, and how much money you want or need to borrow, we can look into possibly the most difficult part: closing costs. Closing costs are what it will cost you, out of pocket, to obtain that new mortgage. Keep in mind, of course, that the more it costs you to get that new loan, the longer it will take to recoup those costs, so there may be some finite limits on what you want to pay.

While some closing costs are standard -- that is, you'll find them all over the country -- there are some that may be specific to your local market, or to your state. Estimating your costs will take a little research, but it's important because they'll cost you anywhere between $1000 to $5000 dollars. Along with the time factor, they will determine your savings (or costs) when you refinance.

The major closing cost in obtaining any mortgage are 'points', also known as 'discount' and 'origination' points. Origination points are treated differently for tax purposes, but each point is equal to 1% of the mortgage amount you borrow -- $1000 each if you're borrowing $100,000. How many points you want to pay, or whether you want to pay any at all, depends upon how much cash you have available. Typically, paying more 'discount' points will lower the available interest rate, since they are a prepayment of interest; however, you may not know that points can often be traded off for a different interest rate -- such as 9% and 3 points, 9.125% and 2 points, 9.25% and 1 point, and 9.375% and no points. (This is just an example).

So, if you decide that paying points is not for you, expect to pay an incrementally higher interest rate. Origination points are a different matter, since they technically are a fee, and they have no effect whatsoever on the interest rate you can obtain. (Some states limit the number of discount points a lender can charge in the making of a mortgage loan).

Of course, points (discount or otherwise) are only one of the costs involved with refinancing. As you well remember from getting your original mortgage, there are plenty of others waiting to tap your resources -- costs for appraising your property, researching your title to the property, title insurance, credit checks, attorney review fees, inspections for insects, and others. These can easily add up to a few thousand dollars, but there may be ways you can reduce these costs. For example, if the lender who originated your mortgage still holds it, you might be able to simply update your title insurance policy, instead of taking out a new one. Or, if your original mortgage required Private Mortgage Insurance (PMI) because you put less than 20% down on the property, and your new mortgage will be 80% or less than the appraised value, you can probably drop your PMI coverage, saving you as much as the equivalent of 1/4 of one percent on your new interest rate. Shopping around and comparing can also help you save on these fees.

One other possible cost, depending upon where you live: taxes. Some states have surcharges known as 'mortgage taxes', 'realty transfer taxes', 'mortgage recording fees' and others. It is very important to find out if your area is one that does charge these fees, since they can add as much as 2% of the mortgage amount to your closing costs, and significantly lengthen the cost recovery time.

What Kind of Mortgage?

Getting the wrong kind of mortgage for your situation, even with a low interest rate, can, and often will, end up costing you money in the long run. Conversely, getting the right kind of mortgage, without a low enough interest rate, can make it take a very long time to recoup your closing costs.

That's because some mortgages are better suited for a shorter time frame, some for mid-length times, and others for the long haul. The time frame you have available will help determine what kinds of products are best suited to your needs. Refinancing to a 30 year fixed rate mortgage may be the wrong selection for you if you don't plan on holding the mortgage long enough to make it pay.

The biggest savings, as you'd expect, come from paying less interest. If you are comfortable with the monthly payment you are now making, it may very well be possible for you to refinance into a mortgage with a shorter term -- 15 or 20 years, for example -- for the very same monthly payment you have now. A 15 year mortgage payment is only about 25% higher than that of a 30 year -- not double, as you might expect. While this won't put money back in your pocket every month, it will let you build equity in your home twice as fast, which can pay you back in a lump sum if and when you sell the home, or let you borrow larger sums against it later. Overall, where a 30 year, $100,000 mortgage (at 10%) will cost you about $216,000 in interest costs over the life of the loan, a 15 year term will only cost you about $94,000 -- a $122,000 savings. So, the term of the loan you want can also help determine your overall savings.

As we mentioned, your time frame will determine the best types of mortgage for you. For example, if your time frame is reasonably short, say one to four years, you'll want to consider a short term mortgage, like a one-year adjustable rate mortgage. With a very low first year's interest rate, and a per-adjustment cap of 2%, you can virtually guarantee that low interest rate, in this example, would be at least 2% below an available 30 year fixed rate, and approximately 3% to 5% below your current interest rate. Don't laugh -- a 4% interest rate spread would recoup $3000 in closing costs in less than one year, plus you'd still have a second year at below market rates. It's certainly worth considering an ARM if your time frame is very short.

As you'd expect, your mortgage choices expand as your time frame does. With a time frame of five to seven years, you might consider a balloon mortgage or the newer "Two-Step" mortgage. With either, your payments are based on as long as thirty years, but your mortgage may end at a much shorter time. But, since your mortgage can end at a shorter time, you get an added benefit: an interest rate that is roughly 1/2% lower than the prevailing 30 year fixed rate mortgage.

If your time frame runs six years or longer, you can start to consider other mortgages, including the 30 year fixed rate; as an alternative, you could also consider taking an ARM, and be prepared to refinance again in another three or four years. This isn't as crazy as it may sound, as we'll show on the chart below by making a worst case assumption. (We assume the same points and closing costs on each mortgage).

Four Year cost analysis: 1 Year ARM vs 30 Year Fixed

$100,000 Original Mortgage Amount

1 Year ARM with 2% Per-Adjustment Cap and 6% Life Caps vs.
30-Year Fixed Rate Mortgage at 9.50%

As you can see, even at a worst case, your 30 year fixed rate would still have cost you slightly more over the four year period. In addition, it's very possible that your ARM wouldn't have gone up the full 2% every year. In that event, if your rate didn't go up the full 2%, year, you would have saved money -- perhaps even enough to pay for your next refinance.

How long will it take for your refinance to save you money? That all depends upon the difference between your existing monthly payment and the monthly payment on your new mortgage.

Breaking Even

Most people want to recoup their closing costs within a "reasonable" amount of time -- typically, three or four years. Of course, lowering your monthly payment (if that's why you refinanced) will put a few dollars back in your pocket every month. Your break-even point (the point where the savings each month has offset the cost of your refi) should be short enough that you enjoy at least a year or two of savings after the break-even point expired.

To start with, you'll need to know what the available interest rates are on the type of mortgage that fits your needs; the difference between your current and projected monthly payments; and your closing costs. Using the worksheet below, you can estimate one (or more) possible scenarios to see just how long it will take.

Time Frame Evaluation: Your Mortgage vs New Mortgage

This number is the number of months it will take to recoup your costs. After this time expires, you'll actually begin to save money each month.

Getting Approved for a Mortgage is about to get tougher.

September 29th, 2009 Dana Bain

What Are The New Changes?

For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines.

In its official announcement, Fannie Mae details the updates, meant to reduce the mortgage firm’s overall risk.

The first major change is with respect to credit scoring. All Fannie Mae loans — whether underwritten electronically or manually — require a 620 credit score minimum. There are very few exceptions.

A second change relates to loans with private mortgage insurance. Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Accept higher mortgage insurance premiums month-after-month
2. Accept a one-time fee paid at closing to compensate for higher risk

Both options pass higher costs to consumers.

New Guidelines Begin December 12th 2009

Then, a third change relates to maximum debt-to-income ratio. As announced in a separate document, Fannie Mae will no longer approve expense ratios exceeding 45 percent except with very strong assets and credit to back it up. In no case can expense ratios exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and new risk-based pricing on “expanded level” approvals.

Fannie Mae implements its updates during the weekend of December 12.

Therefore, if you’re going to need (or want) a new mortgage later this year, consider moving up your timeframe to October or November. Once the guidelines change, getting approved for a mortgage is going to be tougher.