Urgent news in the mortgage market
Thursday, March 19, 2009
The US Government announced today that they are effectively pouring capital into the mortgage market. Find out how this affects your mortgage!
Labels: current market
posted by Dylan Kramer @ 8:07 AM,
Capitalize on Term Reduction
Monday, March 16, 2009
Once you have been in the mortgage business a while it dawns on you that it's not a cliche. For most folks their mortgage is the biggest debt they will ever have and the house is the biggest single investment most customers will make. This realization combined with today's low rates allows an interesting reassessment of refinancing for most customers in today's low rate environment.
The traditional thought over the last few years has been to take every drop in rate as an opportunity to save money monthly. The usual strategy has been simple; a drop in rates equals a drop in monthly payment. Most folks who have had more than one mortgage in their lives have followed rates down into the low 6%s or high 5%s.
This drop in interest rates is different though. The financial statements we see from customers every day have several negatives compared to those of a year or two ago. The retirement accounts are smaller and the value of the property has dropped, reducing the average equity in the home. Combine this with adjustable rates and the stereotypical 30 year fixed refinance may not make sense.
This combination has caused people to reasonably reassess the remaining time on their mortgage. If you have been paying a loan for five or ten years, going back out to 30 years can often not be a worthwhile trade for $100 per month in savings. Many clients are now opting for 20 or 15 year fixed loans with the modest increase in payment being worth it for the long run savings.
How much savings you may ask? Well the answer depends on a combination of the interest rate, balance and length of time the current loan has been in place combined with the interest rate for the new mortgage. This calculation should be done though and a sample of how it should look can be found here.
In simple terms though a $200,000 30 year fixed at 6% that has been in place for 3 years can be refinanced to 5.25% on a 30 year fixed today. This refinance would drop the payment by $95 per month. With 324 payments remaining the life time savings of the loan would be just over $30,000. However, moving to a 20 year fixed would reduce the available rate to 5.125%. The monthly payment would increase by $133 per month over the current payment. This is a nominal amount for most family budgets.
This additional investment would eliminate the mortgage seven years earlier than the current plan and ten years earlier than refinancing. The elimination of seven years of payments at $1200 per month would save this family over $100,000.
For most families this strategy is a winner on two key fronts. The additional principal pay down can help rebuild equity lost in the housing crisis. The elimination of years of payments on the back end of the loan can help retirement or college planning.
The changes in our finances over the last couple of years mandate that we look at our mortgage in a new way. Run the numbers and see if taking advantage of today's interest rate market and reducing your term could work for you.
Labels: current market, term reduction
posted by Dylan Kramer @ 8:43 AM,
The Fix Is In!
Wednesday, March 4, 2009
The "fix" is in.
Today the details of the Obama Loan Modification and refinance plan were released. You can get full details at www.financialstability.gov. There will be the full details of the plan. We have broken down the big issues here. If you have any questions, let us know.
First on refinancing. There is good news for the homeowner who is upside down is unable to refinance due to a negative change in property value. If your loan is owned by Fannie Mae or Freddie Mac, you are now eligible to refinance. In fact, if a lender has already turned you down for a refinance here, directly from the website here is the way to figure if this refinancing option is open to you:
Do I qualify for a Making Home Affordable refinance? Answer these questions:
- Is your home your primary residence?
- Do you have a Fannie Mae or Freddie Mac loan? If you don't know contact:
- Fannie Mae, 1-800-7FANNIE (8am to 8pm EST).
- www.fanniemae.com/homeaffordable
- Freddie Mac, 1-800-FREDDIE (8am to 8pm EST)
- www.freddiemac.com/avoidforeclosure/
- Are you current on your mortgage payments?
- "Current" means that you haven't been more than 30-days late on your mortgage payment in the last 12 months.
- Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?
This program will help a portion of the market that is unable to get help today.
Second is Loan Modifications. The news is not as good here. In a nutshell if you are behind, your loan is a Fannie Mae or Freddie Mac loan and you can prove your income, you can get your loan modified within the following parameters.
- Fixed Rate loan no higher than the going rates for a 30 year fixed (about 5.5% as of today)
- Interest Rate Floor. Lenders will not be required to lower your interest rate below 2.0%
- The option (which all lenders will take) to capitalize (fancy word for add) any back payments, taxes etc. to the balance of the modified loan. (This will make borrowers more upside down than before)
- Payments will be moved to 31% of your documentable income for PITIA (principal, interest, taxes, insurance and association fees)
The challenges here are many but essentially, the lender can put off a loss by capitalizing the arrears making borrowers further indebted.
Anyone who "fudged" or got a stated income loan will have a tough time qualifying even at 2.0%.
Lenders will be swamped, so good luck trying to get through the process.
This program may help a small portion of the borrowing public. The bottom line though is we are sure that not enough homeowners will be eligible and that the rules are not tight enough for us. Combine that with the threat of the bankruptcy cramdown which will drive rates higher very soon and we have a recipe for more problems, not solutions.
Labels: government announcement, loan modification
posted by Dylan Kramer @ 11:17 AM,
The Credit Crisis Visualized
Monday, March 2, 2009
We've spent some time over the last year explaining the root causes of the current credit crisis. Today we're posting what we consider to be our final word on the subject. At AMC, we're looking forward; we're focused on helping buyers and sellers in the current market, as well as those needing to restructure their financing.
This video explains the causes of the credit crunch in easy to understand and extremely simplified concepts. We're providing it as a source of clarity for those who are still confused about how we got here.
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
posted by Dylan Kramer @ 8:06 AM,