Buy or refinance now!

I own a mortgage company so some of you might think this is self serving, but all I'm trying to do is offer some free advise and maybe trigger you to think in a new way. I won't even tell you what state I'm located in or the name of my mortgage company or give you any identifiers so you won't think I'm a Canoe.

Based upon a map I saw on Housingwire.com recently and upon recent foreclosure maps it appears that about 97% of the country isn't in dire straits as far as the housing market goes. For those of you in the areas where housing values are still falling rapidly YMMV.

Mortgage Interest rates are at an all time low. With that said here's a quote from the Wall Street Journal :

"Around 60% of all borrowers with a 30-year fixed-rate loan could lower their rate by one percentage point given current rates ... but only 38% could actually qualify for a refinanced loan because of the stricter loan standards." Mahesh Swaminathan, Senior Mortgage Strategist, Credit Suisse, quoted in The Wall Street Journal, 08.13.10

That same statement could be said about purchase loans as well. Basically 62% of the people with decent downpayments, stable jobs and good credit no longer can qualify for a mortgage loan. Forget the Alt A and B loan people, they aren't part of this equation.

When you change things just to make a change then the baby gets thrown out with the bath water sometimes, but I'm not here to gripe about the current administrations misteaks (of which there are more than a few). If you are one of the 38% who can get a loan I want you to begin to think in a different way.

I own a mortgage company and in the past month or so I've been closing loans at rates that vary between 3.5% to 4.375%. If you are ever going to buy or refinance THIS IS THE TIME!

I've only done one loan with a 30 year term, all the rest have been for 25 years or less.

When my wife and I first got into Real Estate rates were this low and people got as short a term of a loan as they could get and still afford the payments. Then rates started top climb and people had to get 30 year loans just to qualify. Fast forward over 40 years and once again rates are this low, but most people have never even thought about a loan for less than 30 years because that's all they've ever known. You've got to change your thought patterns.

Loan come in 5 year increments. They are basically only quoted as 15 or 30 year loans but you can get 5-10-15-20-25 year loans.

20 year loans are a good blend of payment vs. quick pay out. On a 20 year loan at 4.5% for each $100,000 of loan you will accrue an EXTRA $8,400+ equity in the first 5 years vs. a 30 year loan.

For the first and only time in most people's lives you have the opportunity to get a home and actually have a chance to pay it off. Refinance your current home for the lowest term you can afford and even if you don't stay in it long enough to totally pay it off you will build so much more equity that when you buy your next home you'll have such a large downpayment you may not need to finance it for more than 5-10 years

We are headed for Carter era interest rates. The multi-trillion dollar Healthcare bill alone guarantees it. And that doesn't even factor in all the other huge spending bills that have been passed since the election. There's no question of IF we'll have these rates, the only question is WHEN. By buying or refinancing now at the lowest term you can afford you have the chance of not getting hamstrung when the rates rise to those atmospheric levels. RENTERS will suffer the worst because you will be paying the owner's high interest rates, their cost of the house along with a profit.

If you're like most people you function so much better economically without a car payment, just think of the options you'd have without a house payment.

Another tidbit, pay no or little attention to the low interest rates quoted in the media. They tell less than half the story on rates. Since the CHANGE they've changed how interest rates are calculated. There is now a base rate (what you see quoted in the news) and then you have multiple add-ons for things like loan-to-value, credit score, loan size, buyer strengths, loan term, loan type, etc. Only the top 1-2% of the people get the lowest rate.

Interesting and timely for me...

A primer course on mortgages would be fantastic! I'm looking to buy sometime next year, but don't even know where to start...

HOW CAN I FORMAT THINGS IN THE FORUM? I tried separating by tabs, line returns and by spaces. Neither worked. What can I do?

I'm writing an article on this right now which is what prompted me to post this. Here's some more data I developed for the article. I'm betting it won't format right in the forum but it's supposed to be columns of figures.

$100,000 loan @ 4.5% and I'm showing what your balance would be 5 years into the loan.

           5 years          10 years          15 years          20 years          25 years          30 years

payment $1,864 $1,036 $764 $632 $555 $506 balance $0 $55,591 $73,813 $82,699 $87,857 $91,157

EQUITY FROM PAYMENTS $100,000 $44,409 $26,187 $17,301 $12,143 $8,843

EXTRA EQUITY OVER A 30 YEAR LOAN $100,000 $35,566 $17,344 $8,458 $3,300

I'm interested in your perspective on shorter term loans.

I have always had a 30 year, and prepaid principle to reduce the term of the loan. I felt like that gave me the lowest possible required payment, in case I ever had problems, but I never do. Is there actually a difference between a shorter contractual term and a longer one with pre-payments to shorten the life of the loan?

SVreX wrote: I'm interested in your perspective on shorter term loans. I have always had a 30 year, and prepaid principle to reduce the term of the loan. I felt like that gave me the lowest possible required payment, in case I ever had problems, but I never do. Is there actually a difference between a shorter contractual term and a longer one with pre-payments to shorten the life of the loan?

Only that the shorter term loan probably had a lower interest rate than the longer term one.

A refi would be great if we weren't underwater.

A primer? Nowadays that's a novel.

But first let me address SVreX's paying extra principle on your present loan idea. If you have a 30 year fixed rate mortgage and pay just one extra principle and interest payment a year it will reduce your term to 21 years and some few months. If you pay a little extra each month rather than one lump sum payment when you get your bonus it will actually benefit you slightly more, but not enough really to make it a priority.

The basis of those bi-weekly loan programs is exactly this principle. NEVER pay anyone anything to set up or maintain a bi-weekly loan program. Your present lender will do it for free. The biggest misconception is that bi-weekly payments mean you cut your payment in half and pay it twice a month. WRONG! You pay every other week which means that in 2 months you have 3 payments. The 2 extra payments = 1 extra payment a year.

The cool thing about paying an extra principle payment is that you are in control of the timing. If you take a shorter term loan you owe the higher payment each month even if it is Christmas.

As far as shorter term loans, we've been able to do a fairly high percentage of refinances at a 10-15 year term and keep people's monthly payment at or very near their present payment.

I've got to take my wife out to lunch now, so I'll post more when I return. It's our 41st anniversary today so I dare not be late. I'm not exactly a greeting card person, sending or receiving, so we go to a card store and read anniversary cards to each other. We sometimes make up different punch lines. It's a lot more fun that ecards or a single papercard - and soo much cheaper! (dare I say more romantic as well?)

PubBurgers wrote: A refi would be great if we weren't underwater.

Speak with your favorite mortgage professional - there are refinance programs available for people that owe more than their homes value.

A quick search turned up this link for more info.

carguy123 wrote: The basis of those bi-weekly loan programs is exactly this principle. NEVER pay anyone anything to set up or maintain a bi-weekly loan program. Your present lender will do it for free. The biggest misconception is that bi-weekly payments mean you cut your payment in half and pay it twice a month. WRONG! You pay every other week which means that in 2 months you have 3 payments. The 2 extra payments = 1 extra payment a year. The cool thing about paying an extra principle payment is that you are in control of the timing. If you take a shorter term loan you owe the higher payment each month even if it is Christmas.

Sound Advice. I am also in the mortgage business and spend time advising my borrowers not to pay for the bi-weekly program as it is not what they think and can do the same for free themselves.

I also caution people about refinancing a loan they are 10 years into - even with a lower rate, a lot of the perceived savings come from stretching the remaining balance out over 30 years.

I'm almost 6 years into a 30-year adjustable rate mortgage. Right now my rate is unbelievably low, but I know it won't stay there forever. I'd like to refinance, but I also don't want to throw away six years of payments. Do you know of a tool to calculate the break-even point so that I can compare the numbers between keeping the current loan and refinancing?

Way ahead of you. Right now it's what 4%? I can shave $100/month or cut five years off. Too easy, I'm buying a car.

SVreX wrote: I have always had a 30 year, and prepaid principle to reduce the term of the loan. I felt like that gave me the lowest possible required payment, in case I ever had problems, but I never do.

I am the same as you. Take out a 30 year loan and pay like a 15 year or so. Problems and you can jump back to the 30 year payment.

In 2003 I took out a 30 year 5.25% and have paid for 7 years. I have shaved another 7 years off by sending EXTRA every SINGLE month. So I have 16 more years if I don't add to the principle.

So do I refinance to a 15 year? or just keep paying and prepaying extra?

Try multiplying the principle, interest, and extra principle you are now paying by 192 (16 yrs x 12 months). Then calculate what your payment would be on that 15 year note at todays rates (mulitple mortgage calculators avail online) and then multiply that by 180 (15 years x 12 months). The lowest number is the cheapest way to pay off your home.

This doesn't take into account any tax consequences or benefits of mortgage interest or the cost of the refinance but might help compare the two options.

In reply to pete240z:

You will be very close either way if you factor in closing costs.

I just refi'd (we closed this past Thursday) for two reasons. One, our new rate (4.5% on a 30 year) was much lower than our first mortgage and, two, I wanted to lock in the floating rate on our 2nd mortgage because I imagine interest rates will go up as well.

Now that we've done so, I'm interested in this exact theory below, as I want to shorten the life of my loan as much as possible. Would one of you guys in the business help me figure out the best way to do so? Do I take a full extra payment and send it in each January (or some other annual anniversay)? Or do I take a full payment, divide it by 12 and send that amount in as extra principal each month? Or do I pay every two weeks? What works the best? TIA.

SVreX wrote: I'm interested in your perspective on shorter term loans. I have always had a 30 year, and prepaid principle to reduce the term of the loan. I felt like that gave me the lowest possible required payment, in case I ever had problems, but I never do. Is there actually a difference between a shorter contractual term and a longer one with pre-payments to shorten the life of the loan?

dyintorace wrote: Now that we've done so, I'm interested in this exact theory below, as I want to shorten the life of my loan as much as possible.... Do I take a full extra payment and send it in each January (or some other annual anniversay)? Or do I take a full payment, divide it by 12 and send that amount in as extra principal each month? Or do I pay every two weeks? What works the best? TIA.

Any money that you throw at the principle is good.
The earlier you throw it at the principle the better.

So, if you question is:
1. Should I keep some money in a jar and then on-time, at the end of the year, make an extra payment?
or
2. Place an extra $100 to each payment ($100 x 12 months = $1,200 for the year)

The answer is give the money to the bank as quickly as you comfortably can so choice # 2 would be better. You are paying interest on what you still owe. Any dollar given is another dollar that you do not have to borrow and therefore pay interest upon.

MrJoshua wrote: In reply to pete240z: You will be very close either way if you factor in closing costs.

that's what I figure. I will just keep paying off the loan I have. I created a giant excel spreadsheet and track all the extra I have sent in. I think there is a point to STOP refinancing and just pay the sucker off.

There are many mortgage refinance calculators on the web that will allow you to play with the numbers. Remember there is always a cost to refinance. Few pay it out of pocket - it is either added to the loan amount, built into the rate or both. So there's always going to be a payback period and a break even point.

Many of the bad actors have left the business but not all of them. Ask who will service your loan - that's the relationship that you are establishing for years to come.

Be prepared for the loan approval process to be complicated and perhaps frustrating. Lenders are being forced to jump through many hoops these days and are still adjusting to new regulations. Volume is high and capacities are being stretched.

If you have a FHA or VA loan, ask about a 'streamline refinance'.

If you are considering buying a home with FHA financing, and can pull the trigger - do so! After October 4th, the up-front cost of a FHA loan will go down, but the monthly premium will nearly double. If your lender gets a 'case number' from HUD before 10/4, the old premiums will apply.

If the home is in a 'declining market' as defined by your lender, expect additional scrutiny and tougher qualifying standards. Every lender uses a different list, so in some cases it may pay to ask several.

Lastly, don't materially misrepresent your circumstances in order to qualify - including failing to disclose information. You would be shocked at the percentage of loans that default due to fraud - not 'thieves', just people lying to get the loan.

Sorry I started something I can't finish today guys. We went to the card store and spent over an hour reading cards and laughing. The clerks kept coming over and asking us if we needed help and other customers stayed far away.

During the visit I got surprised with a couple of things she'd set up so I have to leave town in about 45 minutes and won't be back till in the morning. I promise I'll finish in the morning. Since nature abhors a vacuum I'm hoping that the thread doesn't get filled up and off track until I get back. I haven't looked at the posts, but I know how you guys can be. By this time tomorrow the thread will be about a wrecked car someone found in a junkyard in France that would look good with an LSx under the hood.

I already have a 4.25% rate (30 year fixed) should I start shopping?

Thanks for the heads-up. A coworker wandered by and mentioned the kind of loan numbers he was seeing on his new construction, so this is well timed. I'll hit up my mortgage broker this week and see what he has to say. We've paid off a pretty high percentage of our house but everything helps!

EricM wrote: I already have a 4.25% rate (30 year fixed) should I start shopping?

That is about what you would get now. I would keep it.

There's a really cool Citroen at the pick-a-part. And it's next to a Chebby truck with a LSx. If you make a deal on both...

Interest is theft, every month, from your pocket. Our entire economy has been structured around this. You win by not playing.

Now, you gotta play in this game if you want a house, realistically. Few want to wait the 10-20 years it would take to save up enough to purchase a house. Interest rates are now just about as low as they can go for a refi. The fed rate is still at zero. What is a mortgage rate going to do? Go to 2% from 3.x%? Not likely, but not impossible. Of course, a year ago, they were telling us that 5-6% was as low as it could go, but I doubt you'll pull more than another half point, and it could be at the bottom. The 3-4% rates out there now are probably a very good thing to lock in. If you are stuck with some type of ARM, lock that sucker down now if you can.

Why wouldn't you lock it in? Because it is likely to cost you 2-3K to do that. Let's just say 2K for all the BS they add to it. Points, appraisal fee, whatever. Calculate what your old payment (principal and interest only) would be versus what the new payment (P&I) would be, divide the total closing costs (and I mean TOTAL, guess high) by that and you have your payback time. I could give you the dimensional analysis if you want. Anyway, if you're not planning on moving and the payback is like a year, (they tell you 5 years, but then they're trying to sell you another mortgage), then do it.

Better yet would be to just pay the damn thing off, if you can. As stated by others, there is no magic formula for when or how much to pay on the principal. Just pay what you can on it when you can. Have an emergency fund in place first, then start socking away any extra money you can on that morgtage. You will be surprised at how fast the interest rate starts working for you and against the bank. Look, you have an extra 10 large sitting in the bank or in cash in a brokerage account (because the stock market is crashing, again, or will as we continue on into Great Depression 2.0). What are you going to do? Buy a CD at the bank? What's the interest rate? Wow, 1%? Dang, don't spend it all in the same place. Instead, you take that ten large and send it to your bank marked "Principal Only" so they don't berkeley you on it (and they might). You had a mortgage at 6%. You now are getting a 6% return on that ten large, because the bank is charging you less interest than they were before. That's 5% better than the CD was going to give you. You're coming out ahead. Look at the portion of your next monthly payment that goes to principal and the portion that goes to interest and compare it to previous months. BoA has a web page with the last year or two of all the numbers on it. You just took a big jump in what goes to principal and the bank is getting less interest. Banks don't like this. They don't want their money back. They want your money for their nothing. This is how you win.

jrw1621 wrote:

dyintorace wrote: Do I take a full extra payment and send it in each January (or some other annual anniversay)? Or do I take a full payment, divide it by 12 and send that amount in as extra principal each month?

Any money that you throw at the principle is good. The earlier you throw it at the principle the better. So, if you question is: 1. Should I keep some money in a jar and then on-time, at the end of the year, make an extra payment? or 2. Place an extra $100 to each payment ($100 x 12 months = $1,200 for the year) The answer is give the money to the bank as quickly as you comfortably can so choice # 2 would be better. You are paying interest on what you still owe. Any dollar given is another dollar that you do not have to borrow and therefore pay interest upon.

\

Definitely choice #2. We have done that every time (4 times so far)we have mortgaged the house. Send an extra $100 or so every month you can afford to. If you can't some months (holidays, emergencies, etc.) there is no penalty if you don't.