For those of you who have high Loan to Value ratios the main option for you had been Fannie Mae’s Refi Plus program. In order to qualify for the program your loan would need to be owned by Fannie Mae – if it was owned by Freddie Mac then you would have to approach your current lender directly.
However, there is now an alternative. Freddie Mac’s Open Access program allows us as a broker to refinance your mortgage with up to 100 – 105% Loan to Value (depending on the lender).
If your loan is a Freddie Mac loan, contact us and we can confirm your eligibility and help you refinance while this special program is still available!
Tuesday, December 1, 2009
Thursday, August 20, 2009
Return to ARMs (Adjustable Rate Mortgages)
ARMs or adjustable rate mortgages is making some what of a comeback. While ARMs took a beating the past few years for getting borrowers into loans with low initial teaser rates that promoted unsustainable low monthly payments. Eventually this caused borrowers financial problems who were unprepared when the adjustment period kicked in and increased the monthly payments caused defaults on loan. The key word was for unprepared borrowers, but if you know how to use an ARM it does have its advantages for certain borrowers.
Rates for 5/1 ARM are very attractive right now, as low as 4% with no points and can be even lower with some points for loans up to $729,750.
To know if should you take an adjustable rate mortgage you need to understand what exactly is an ARM. An adjustable rate mortgage have several components; some generic to the industry some specific to the loan. The generic components are:
Starting rate, this is the rate your initial monthly payments are based on. It can be as low as 1% in the past, most of those loans is no longer around.
Adjustment period, this is when the monthly payment will change based on market rate changes, for example if it is a 5/1 ARM with a starting rate of 4%, it means you will have your first payment change after 5 years.
An index, a published rate based on some industry recognized source. The most common indexes are United States treasuries and LIBOR, which stand for London interbank offering rate. Many home equity loans are based on WSJ (Wall Street Journal) prime.
A margin is what each lender adds on to the index to calculate your new monthly payment. Most margins are between 2.25% to 2.75%, each loan will have its own stated margin and the margin will be constant and never change. Today most margin are 2.25%, so in five years after the initial period has expired, your new payment will be based on whatever the index is at the time plus the margin. Many of the ARMs are using the LIBOR index. Today the 1 years LIBOR index is 1.32% assuming five tears from now the index rises to 3.32% which means rates increased by 2%, your new payment will be calculated base on 3.32% plus 2.25% for a new rate of 5.57%, not a prediction just an example. And the loan will have that rate for 1 year, the following year the same calculation is done again.
For protecting against unexpected large rate increases, ARMs have built-in rate caps. Today the most common rate caps are 5/2/5. This mean for the first adjustment period the rate can increase by no more that 5% higher than you initial rate; each year after it can increase no more than 2% higher than the previous year and for the lifetime of the loan no more than 5% of the initial rate. To be clear, if your first adjustment is 5% higher then you have capped out and it can never increase. Any future adjustments can only be lower than the 5% cap.
Shopping for ARMs is much less confusing today. The margin and index are fairly standard and the days of the past when loans with artificial low teaser rates and complicated payment options allowing borrowers to pay less than what the actual payments should be are gone. While conservative borrowers may still fear the ARMs, if your individual situation fits the parameter of an ARM, you should consider it.
The clearest example of a candidate for ARMs is someone who intends to move on to a new home after 3 or 5 or 7 years. In this case the ARM certainly offers a lower rate than the traditional fixed rate mortgages. All the variety of ARMs offered in the past probably had some feature that can benefit some borrowers, but many of the borrowers who took out the fancy ARMs did not fully understand the loans to truly benefit from them.
I am a conservative borrower and stayed away from the ARMs, but as it turned out because the rates have been so low for so long, one of my mortgages based on LIBOR have been the best loan I have had for the past 5 years.
Rates for 5/1 ARM are very attractive right now, as low as 4% with no points and can be even lower with some points for loans up to $729,750.
To know if should you take an adjustable rate mortgage you need to understand what exactly is an ARM. An adjustable rate mortgage have several components; some generic to the industry some specific to the loan. The generic components are:
Starting rate, this is the rate your initial monthly payments are based on. It can be as low as 1% in the past, most of those loans is no longer around.
Adjustment period, this is when the monthly payment will change based on market rate changes, for example if it is a 5/1 ARM with a starting rate of 4%, it means you will have your first payment change after 5 years.
An index, a published rate based on some industry recognized source. The most common indexes are United States treasuries and LIBOR, which stand for London interbank offering rate. Many home equity loans are based on WSJ (Wall Street Journal) prime.
A margin is what each lender adds on to the index to calculate your new monthly payment. Most margins are between 2.25% to 2.75%, each loan will have its own stated margin and the margin will be constant and never change. Today most margin are 2.25%, so in five years after the initial period has expired, your new payment will be based on whatever the index is at the time plus the margin. Many of the ARMs are using the LIBOR index. Today the 1 years LIBOR index is 1.32% assuming five tears from now the index rises to 3.32% which means rates increased by 2%, your new payment will be calculated base on 3.32% plus 2.25% for a new rate of 5.57%, not a prediction just an example. And the loan will have that rate for 1 year, the following year the same calculation is done again.
For protecting against unexpected large rate increases, ARMs have built-in rate caps. Today the most common rate caps are 5/2/5. This mean for the first adjustment period the rate can increase by no more that 5% higher than you initial rate; each year after it can increase no more than 2% higher than the previous year and for the lifetime of the loan no more than 5% of the initial rate. To be clear, if your first adjustment is 5% higher then you have capped out and it can never increase. Any future adjustments can only be lower than the 5% cap.
Shopping for ARMs is much less confusing today. The margin and index are fairly standard and the days of the past when loans with artificial low teaser rates and complicated payment options allowing borrowers to pay less than what the actual payments should be are gone. While conservative borrowers may still fear the ARMs, if your individual situation fits the parameter of an ARM, you should consider it.
The clearest example of a candidate for ARMs is someone who intends to move on to a new home after 3 or 5 or 7 years. In this case the ARM certainly offers a lower rate than the traditional fixed rate mortgages. All the variety of ARMs offered in the past probably had some feature that can benefit some borrowers, but many of the borrowers who took out the fancy ARMs did not fully understand the loans to truly benefit from them.
I am a conservative borrower and stayed away from the ARMs, but as it turned out because the rates have been so low for so long, one of my mortgages based on LIBOR have been the best loan I have had for the past 5 years.
Thursday, August 13, 2009
Subordination: What is it & why should I care?
Guest-blogging today is Alex Nunemaker, a Loan Consultant with Borrow123.com. He can be reached at alex@borrow123.com with any specific questions or comments.
You have a mortgage that you’d like to refinance – but you also have a home equity line or other 2nd trust on the property. While this situation is fairly common, the market has made getting these 2nd trusts “subordinated” more difficult.
To begin with resubordination (or just subordination) is required when you have more than one lien on the property. More than likely, your smaller 2nd trust (such as the case if you have an old 80-10-10 loan) or a Home Equity line is in the second lien position. Anytime you refinance your primary or first mortgage you have to get a Subordination Agreement from you 2nd trust holder. This agreement will state that your 2nd trust holder has reviewed the new terms and conditions and they agree to stay in the 2nd lien position. Otherwise the new mortgage you are refinancing into would go into the 2nd position, and your Home Equity Line would bump into the first lien position (which almost all lenders will not agree to).
While it’s not important that you as a borrower now everything that goes on this process, there are a few reasons why you as a borrower may be effected, and they all stem from two facts: 1) home values are dropping and 2) interest rates are low and 2nd trust lender have received a lot of requests for subordinations. As a result lenders are taking longer to subordinate loans and are rejecting more subordination requests.
Let’s look at an example:
You have a first mortgage of $250,000; a HELOC with no balance but a total line up to $100,000. Your current market value is $350,000, but when you received the HELOC it was $450,000. When you send in a subordination request they will calculate your CLTV based upon your first mortgage + the total line (not just your balance – since you can draw upon the entire line). This would make your CLTV 100% since your value is $350,000. Most lenders will not approve this – traditionally what we see is lenders approving loans between 85-90% CLTV as a maximum. To proceed with the loan you would likely need to reduce your total HELOC amount or reduce your 1st mortgage loan amount.
Before even locking in a rate, it is also imperative to contact your 2nd trust lender to see how long their turn-times are for subordinations. While in the past in only took a couple of days, we now routinely see them take 2-8 weeks which will effect your lock-in period.
Many times, it makes more sense (especially if you have a HELOC with no balance) to close the loan and reopen another HELOC after refinancing. Just make sure you won’t have any unexpected early closure penalties. With any loan these days it’s important to contact your 2nd trust lender to see how long they would take, and if they have any special guidelines to make your refinance as smooth as possible.
You have a mortgage that you’d like to refinance – but you also have a home equity line or other 2nd trust on the property. While this situation is fairly common, the market has made getting these 2nd trusts “subordinated” more difficult.
To begin with resubordination (or just subordination) is required when you have more than one lien on the property. More than likely, your smaller 2nd trust (such as the case if you have an old 80-10-10 loan) or a Home Equity line is in the second lien position. Anytime you refinance your primary or first mortgage you have to get a Subordination Agreement from you 2nd trust holder. This agreement will state that your 2nd trust holder has reviewed the new terms and conditions and they agree to stay in the 2nd lien position. Otherwise the new mortgage you are refinancing into would go into the 2nd position, and your Home Equity Line would bump into the first lien position (which almost all lenders will not agree to).
While it’s not important that you as a borrower now everything that goes on this process, there are a few reasons why you as a borrower may be effected, and they all stem from two facts: 1) home values are dropping and 2) interest rates are low and 2nd trust lender have received a lot of requests for subordinations. As a result lenders are taking longer to subordinate loans and are rejecting more subordination requests.
Let’s look at an example:
You have a first mortgage of $250,000; a HELOC with no balance but a total line up to $100,000. Your current market value is $350,000, but when you received the HELOC it was $450,000. When you send in a subordination request they will calculate your CLTV based upon your first mortgage + the total line (not just your balance – since you can draw upon the entire line). This would make your CLTV 100% since your value is $350,000. Most lenders will not approve this – traditionally what we see is lenders approving loans between 85-90% CLTV as a maximum. To proceed with the loan you would likely need to reduce your total HELOC amount or reduce your 1st mortgage loan amount.
Before even locking in a rate, it is also imperative to contact your 2nd trust lender to see how long their turn-times are for subordinations. While in the past in only took a couple of days, we now routinely see them take 2-8 weeks which will effect your lock-in period.
Many times, it makes more sense (especially if you have a HELOC with no balance) to close the loan and reopen another HELOC after refinancing. Just make sure you won’t have any unexpected early closure penalties. With any loan these days it’s important to contact your 2nd trust lender to see how long they would take, and if they have any special guidelines to make your refinance as smooth as possible.
Wednesday, July 29, 2009
The "No Cost" Refinance
Guest-blogging today is Alex Nunemaker, a Loan Consultant with Borrow123.com. He can be reached at alex@borrow123.com with any specific questions or comments.
As a loan consultant I hear a lot about no-cost mortgages being done. The name seems to imply that the loan will be done for free – making it pretty hard to beat! However, there is almost never a time when a loan will truly be done at no cost. If you are ever marketed a "no cost" loan, it is imperative that you know exactly how the loan is being structured.
This type of loan really should be called the “no out-of-pocket cost” loan, because it means at closing you would not have to bring funds to cover closing costs. Traditionally, there are two ways to make this happen. The first way is to get rebate points from the lender by accepting a slightly higher rate. However, lenders have dramatically reduced the amount of rebate points they offer for accepting a higher rate so it is becoming more unlikely to find a rate that will give you enough rebate points to cover closing costs and still have a rate that makes refinancing worthwhile.
What is much more frequent with a no-cost mortgage today is to roll closing costs into the principal of the loan. So in reality there is no immediate cost – but you will pay that cost over the amortization of the loan.
For example, let’s say you are looking to take out a loan for $250,000. Offer A is for $250,000 at 5% with $5,000 in closing costs. Offer B is a no-cost loan also at 5%. More than likely, that $5,000 in closing costs is included in the principal so really you are borrowing $255,000 at 5%. Offer A has the advantage of borrowing less initially by paying today and Offer B allows you to keep money in your pocket today, but you owe more over the life of the loan.
This is not to say that wrapping closing costs is a bad idea – in some ways it can really work for you. For instance, Offer A will give you a Principal & Interest payment of $1342.05. Offer B will give you a payment of $1368.90 – a difference of about $27/month. If that $27 does not make a big difference in your monthly budget it may be worthwhile to keep that $5000 in your pocket right now and roll it into the loan.
Another advantage of wrapping in closing costs is that you can wrap in some additional points into the loan to buy down the interest rate. While you may have to borrow a little more, you can lock in a lower interest rate than you otherwise normally could. This could keep your monthly payment at roughly the same amount (possibly lower) and allow you to pay down the principal faster.
Let’s go back to our example. Offer A stays that same at 5% with $5000 in closing costs. However, Offer B could allow you to buy down the rate to 4.375% at a cost of an additional 1.25 points, or $3225 (bringing total closing costs to $8,187 and rounding the loan amount to about $258,200).
Offer A:
Loan Amount $250,000
Interest Rate: 5%
Monthly Payment: $1342.05
Closing Costs: $5000
Principal Amount after 10 years: $202,860.42
Total Payments after 10 years: $161,046
Offer B:
Loan Amount: $258,200
Interest Rate: 4.375%
Closing Costs: $0
Monthly Payment: $1289.15
Principal Amount after 10 years: $205,422.67
Total Payments after 10 years: $154,698.00
The important thing to take away from this is that Offer A will have a slightly lower balance after 10 years (about $2500). However, Offer B got to where it’s at with $6348 less in total payments ($52.90/month) and without paying $5000 at its inception.
In conclusion, it’s important to realize that there is never really a "no-cost" loan. However you can minimize out of pocket expenses. It is also important to keep in mind your overall goals when making any decision in relation to your mortgage – in order to see the benefits of these rate reductions you need to hold on to the asset (your house) for long enough to see the benefit.
As a loan consultant I hear a lot about no-cost mortgages being done. The name seems to imply that the loan will be done for free – making it pretty hard to beat! However, there is almost never a time when a loan will truly be done at no cost. If you are ever marketed a "no cost" loan, it is imperative that you know exactly how the loan is being structured.
This type of loan really should be called the “no out-of-pocket cost” loan, because it means at closing you would not have to bring funds to cover closing costs. Traditionally, there are two ways to make this happen. The first way is to get rebate points from the lender by accepting a slightly higher rate. However, lenders have dramatically reduced the amount of rebate points they offer for accepting a higher rate so it is becoming more unlikely to find a rate that will give you enough rebate points to cover closing costs and still have a rate that makes refinancing worthwhile.
What is much more frequent with a no-cost mortgage today is to roll closing costs into the principal of the loan. So in reality there is no immediate cost – but you will pay that cost over the amortization of the loan.
For example, let’s say you are looking to take out a loan for $250,000. Offer A is for $250,000 at 5% with $5,000 in closing costs. Offer B is a no-cost loan also at 5%. More than likely, that $5,000 in closing costs is included in the principal so really you are borrowing $255,000 at 5%. Offer A has the advantage of borrowing less initially by paying today and Offer B allows you to keep money in your pocket today, but you owe more over the life of the loan.
This is not to say that wrapping closing costs is a bad idea – in some ways it can really work for you. For instance, Offer A will give you a Principal & Interest payment of $1342.05. Offer B will give you a payment of $1368.90 – a difference of about $27/month. If that $27 does not make a big difference in your monthly budget it may be worthwhile to keep that $5000 in your pocket right now and roll it into the loan.
Another advantage of wrapping in closing costs is that you can wrap in some additional points into the loan to buy down the interest rate. While you may have to borrow a little more, you can lock in a lower interest rate than you otherwise normally could. This could keep your monthly payment at roughly the same amount (possibly lower) and allow you to pay down the principal faster.
Let’s go back to our example. Offer A stays that same at 5% with $5000 in closing costs. However, Offer B could allow you to buy down the rate to 4.375% at a cost of an additional 1.25 points, or $3225 (bringing total closing costs to $8,187 and rounding the loan amount to about $258,200).
Offer A:
Loan Amount $250,000
Interest Rate: 5%
Monthly Payment: $1342.05
Closing Costs: $5000
Principal Amount after 10 years: $202,860.42
Total Payments after 10 years: $161,046
Offer B:
Loan Amount: $258,200
Interest Rate: 4.375%
Closing Costs: $0
Monthly Payment: $1289.15
Principal Amount after 10 years: $205,422.67
Total Payments after 10 years: $154,698.00
The important thing to take away from this is that Offer A will have a slightly lower balance after 10 years (about $2500). However, Offer B got to where it’s at with $6348 less in total payments ($52.90/month) and without paying $5000 at its inception.
In conclusion, it’s important to realize that there is never really a "no-cost" loan. However you can minimize out of pocket expenses. It is also important to keep in mind your overall goals when making any decision in relation to your mortgage – in order to see the benefits of these rate reductions you need to hold on to the asset (your house) for long enough to see the benefit.
Tuesday, July 28, 2009
Borrow123.com is now on Twitter!
You can now follow Borrow123.com on Twitter at http://twitter.com/Borrow123
This is just one more tool for you to stay up to date on the latest rates, updates, market conditions and happenings here at Borrow123.com
This is just one more tool for you to stay up to date on the latest rates, updates, market conditions and happenings here at Borrow123.com
Friday, May 29, 2009
HR 1728
HR 1728 is a mortgage reform bill passed by congress earlier this month.
"The act is to,
To amend the Truth in Lending Act to reform consumer mortgage practices and provide accountability for such practices, to provide certain minimum standards for consumer mortgage loans, and for other purposes."
The bill is to be presented to the senate sometime in the future, and when and if it does pass and become law this could change the way mortgages are originated in the future.
The bill is comprehensive, covering from the mortgage origination to mortgage standards to appraisal, high cost mortgages counseling and fraud prevention and a host of other related activities.
I am impressed by the breath of the act, and an extensive portion of the act is to protect the consumer from unscrupulous practices of the lenders and brokers.
Many of the current lending practices may have to change and brokers in particular may be most affected. The bill is to reform and regulate many areas of the mortgage industry, and heated discussions by interested parties have argued for the pro and cons of the bill.
It is too early to tell how all this will turn out, but one example of what is proposed is the elimination of the broker compensation from the lenders in the form of rebate points.
As most borrow123.com customers know, we offer rebate points corresponding to certain interest rates, you then can have a choice of lower rates or higher rate with rebate points to offset closing cost. This practice may be eliminated, along this proposal is brokers may not be compensated by lenders so we may have to charge borrower for origination fee, making the zero point loan extinct.
So this is not an attempt from me to rush you to refinance but rather a heads up on current mortgage reform and maybe trigger readers who are interested to look further into the possible impact of the bill.
On a personal note, for long time borrow123.com customer, I like to report two of my former employees, processor Olivia and Loan consultant Qi, pronounced as Chee, during the slow down of the market both have graduated from law school and Olivia has past the Bar exam and is practicing in a DC law firm, while Qi is scheduled to take the Bar soon.
Congrats to them and this is also an indication of great people I have had working for Borrow123.com.
"The act is to,
To amend the Truth in Lending Act to reform consumer mortgage practices and provide accountability for such practices, to provide certain minimum standards for consumer mortgage loans, and for other purposes."
The bill is to be presented to the senate sometime in the future, and when and if it does pass and become law this could change the way mortgages are originated in the future.
The bill is comprehensive, covering from the mortgage origination to mortgage standards to appraisal, high cost mortgages counseling and fraud prevention and a host of other related activities.
I am impressed by the breath of the act, and an extensive portion of the act is to protect the consumer from unscrupulous practices of the lenders and brokers.
Many of the current lending practices may have to change and brokers in particular may be most affected. The bill is to reform and regulate many areas of the mortgage industry, and heated discussions by interested parties have argued for the pro and cons of the bill.
It is too early to tell how all this will turn out, but one example of what is proposed is the elimination of the broker compensation from the lenders in the form of rebate points.
As most borrow123.com customers know, we offer rebate points corresponding to certain interest rates, you then can have a choice of lower rates or higher rate with rebate points to offset closing cost. This practice may be eliminated, along this proposal is brokers may not be compensated by lenders so we may have to charge borrower for origination fee, making the zero point loan extinct.
So this is not an attempt from me to rush you to refinance but rather a heads up on current mortgage reform and maybe trigger readers who are interested to look further into the possible impact of the bill.
On a personal note, for long time borrow123.com customer, I like to report two of my former employees, processor Olivia and Loan consultant Qi, pronounced as Chee, during the slow down of the market both have graduated from law school and Olivia has past the Bar exam and is practicing in a DC law firm, while Qi is scheduled to take the Bar soon.
Congrats to them and this is also an indication of great people I have had working for Borrow123.com.
Wednesday, May 6, 2009
Market Update
We are now seeing long term bond yields climb to 3.188% (as of May 6th). Yet mortgage rates for 30 years fixed remains at below 5%. This is definitely a sign of the spread narrowing between treasuries and mortgage backed securities. How long can the rates stay at the present levels is anybodies guess.
While I pretend playing amateur economist, I will attempt to guess and give some reasons as to why I think the direction of the rates will go.
Given federal policy has dominated the mortgage rates and strong and forceful controls are in place to ensure rates stay as low and as long as the economy need it, we will continue to see rates between the range of 4.75% to 5.25% for the 30 years fixed mortgages. This will be the range where the agency loans rates will be until Federal policy changes. Obviously, when there are signs of economic recovery, Federal policies will no longer focus solely on keeping rates low. Monetary policies may change to other areas of the economy, and any sign of inflation will cause the rates to go up.
In the news, Mr. Bernanke (Chairman of the Federal Reserve), has commented that he sees no sign of inflation as of now. He also stated that he thinks the economy may see improvements in late 2009. Based on these statements we might see rates remain low for the remainder of the year. In the meantime, it appears that the economy has made some sort of recovery, housing sales are stronger, stock market has rebounded, and unemployment is slowing down. If unemployment is a lagging economic indicator, then we may have seen the worst of the economy.
There are also signs of revival of the mortgage market other than agency loans. I am seeing some very attractive super jumbo rates, albeit the really good rates are the Adjustable mortgages. As of today (May 6th), we have 5/1 ARMs for 3.75% with no points. For those that don’t plan on staying in the house for more than 5 years, these 5/1 ARMS maybe a consideration.
While I pretend playing amateur economist, I will attempt to guess and give some reasons as to why I think the direction of the rates will go.
Given federal policy has dominated the mortgage rates and strong and forceful controls are in place to ensure rates stay as low and as long as the economy need it, we will continue to see rates between the range of 4.75% to 5.25% for the 30 years fixed mortgages. This will be the range where the agency loans rates will be until Federal policy changes. Obviously, when there are signs of economic recovery, Federal policies will no longer focus solely on keeping rates low. Monetary policies may change to other areas of the economy, and any sign of inflation will cause the rates to go up.
In the news, Mr. Bernanke (Chairman of the Federal Reserve), has commented that he sees no sign of inflation as of now. He also stated that he thinks the economy may see improvements in late 2009. Based on these statements we might see rates remain low for the remainder of the year. In the meantime, it appears that the economy has made some sort of recovery, housing sales are stronger, stock market has rebounded, and unemployment is slowing down. If unemployment is a lagging economic indicator, then we may have seen the worst of the economy.
There are also signs of revival of the mortgage market other than agency loans. I am seeing some very attractive super jumbo rates, albeit the really good rates are the Adjustable mortgages. As of today (May 6th), we have 5/1 ARMs for 3.75% with no points. For those that don’t plan on staying in the house for more than 5 years, these 5/1 ARMS maybe a consideration.
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