Blog Category: refinance
In a word, no. This is not possible. I wrote a blog back in 2011 in another feverish refinance market. It showed the numbers on how you can’t shorten the term of your loan from 30 to 15 years without increasing your monthly mortgage payment. Those numbers bear repeating in the current interest rate climate and are below. Check out this hypothetical example:
Don’t Cash Out, Cash In! Some people call me about taking some equity out of their home, this is called a “cash out” refinance. Lately, people have been calling me about putting “cash in” to their refinance to pay the loan down. With property values having fallen in some markets, instead of giving up on refinancing some people should consider paying the loan down by paying some of the principal down at settlement.
It seems these days putting cash into your house may get you a better return than stocks! Freddie Mac says 33% of all homeowners who refinanced a mortgage in the 3rd quarter of this year paid down at least a portion of the original loan. This figure was up from 23% in the second quarter. Freddie Mac began keeping track of these stats in 1985, and they show the “cash-in” share of refinancing activity was the highest since they started tracking these numbers 25 years ago.
Not only is paying down your loan a sign of a real estate market that has gone down in many areas, it is likely a sign of the fiscal times. People seem to feel they have taken on a lot of debt, and its time to pay it down. So paying down your loan may be a wise economic move, or it may just make you feel better to owe less money. Either way, talk through the savings, closing costs and the potential returns on paying down principal with an experienced mortgage professional. It may make sense for you!
This blog post will definitely be educational, and does have a specific topic. However, it will end up sounding like more of a rant than anything! The topic for today’s blog post is a loan program called the “Refinance Plus.”
The Refinance Plus allows people to refinance who have less equity than when they bought the home. There are numerous guidelines that I will not bore you with, as I want to focus my rant/blog on one specific area of this loan program.
There is always another bus, right? So why not wait for the next one? I am not sure I agree. The next bus may be broken down, or out of gas, or delayed beyond a comfortable waiting period. But I am not talking about a bus, I am talking about a refinance. I hear rates are going down 1% a week, and soon banks will be giving away money for free. Do not refinance now because mortgages will be free soon if you wait. And if you wait long enough, banks will even pay you to take a mortgage. Is this true? Come on! You know my sense of sarcasm. No, it is not true. But
Sometimes people just can’t squeeze it all in. Right now, it is hard for banks to fit all the business they have through their systems. Now, I am the first one to pile on the banks for their bureaucracy and inefficiencies. However, in the case of any business, when you suddenly get an onslaught of 10 times the business that you normally get (that is a 1000% increase folks!) no one will be able to handle that efficiently.
Have patience when people are busy
So anyone that wants a mortgage right now will need to be patient. Banks will prioritize purchase loans over refinance loans, since the purchase loans have contractual deadlines.
And for all of the people getting a refinance right now who want to complain about how long it takes, please think about how your performance would be effected if you had a 1000% increase in your business, whatever that business may be. Right now refinance applicants need to kick back, wait, turn in whatever paperwork is requested, and look for the call that says it is all finally over and settlement is ready to happen. Complaining about it only makes it worse, and will not speed up the process.
Most important things to remember
The most important things to remember is a high volume refi mortgage market are:
-deal with someone reputable, that you trust, have worked with before, or were referred to.
-make sure your interest rate is locked-in for a long enough period to cover the loan processing time frame, which for a refi is usually going to require a 45 or a 60 day lock-in.
-turn in all paperwork immediately, DO NOT DELAY.
-when the appraiser contacts you to gain access to your property to do the appraisal inspection, drop everything and get them in the home right away!
-consider working with a mortgage broker, a small bank or a mortgage banker, since large banks are notoriously taking the longest time to underwrite loans, by a wide margin.
I know it sounds like a hurry up and and wait situation, and it is. But, if a bank will take 40-45 days or more to process, underwrite, approve and prepare closing documents, why give them an excuse to miss the lock-in deadlines? Then they may tell you that since the lock-in deadline is past, you now must pay a higher rate. So…keep pushing the ball back in their court, and “hurry up, and wait.”
I have heard more and more clients tell me that some nameless, faceless mortgage people or “friends” have told them they should refinance from a Conventional loan to an FHA loan. Huh? Usually the smart advice giver is giving the advice because they know the client has had a hard time getting a sufficient appraisal to refinance as a Conventional loan, and that FHA requires much less equity.
Should I refinance? It seems like an easy question, doesn’t it? But I have read and heard so many different stories, rules of thumb, and methods to calculate whether or not one should refinance it is mind boggling. It is simple, forget all of the rules of thumb that you have heard.
Refinancing is all about asking yourself how much do you have to spend to refinance, and how much would you save. Figuring out what the recapture period is will help you decide if you should refinance or not.
Actually, the refinance boom is indeed over. However, there are a fair amount of people that still need to refinance. For example, I know of many people who have excellent interest rates on a 15-Year fixed rate mortgage. They thought they would be in their home forever and wanted to get the mortgage paid off over a shorter term. But now have suffered a job setback or some other sort of financial blow, and need to revert to a 30-Year mortgage to reduce the monthly payment.
Let me give you an example.
Let’s assume the following:
• A homeowner owns a home with a $300,000 loan that was refinanced at the bottom of the market in late 2012 or early 2013. And it has a 3.00% 15-Year fixed rate.
• He currently owes $284,000.
• This principal and interest payment is $2,071 not including taxes and insurance.
What is the outcome?
If this homeowner refinanced the current principal to a 30-Year fixed rate today at 4.625%, the principal and interest payment would be $1,460. This would save over $600 a month! I’d hate to see someone lose a 15-Year mortgage, which enabled them to get their mortgage paid off quickly. However, if economic problems have struck someone and they need monetary relief, refinancing to a 30-Year fixed rate mortgage might be the answer.
Actually, the refinance boom is indeed over. However, there are a fair amount of people that still need to refinance. For example, I know of many people who have excellent interest rates on their 30-Year fixed rate mortgages, and plan to be in their home for a long time or possibly forever. These people should consider giving up their low 30-Year fixed rate. They can get a still quite low 15-Year fixed rate and save a small fortune over time.
Actually, the refinance boom is over. However, there are a fair amount of people that still need to refinance. The problem is that the people that have not refinanced when rates were low simply don’t realize that they should still refinance. The people that obviously needed to refinance have already refinanced, in some cases multiple times. There are many people left that can refinance.
Actually, the refinance boom is indeed over; however, there are a fair amount of people that still need to refinance. For example, I know of many people who have decided to move sooner than they imagined. I hear of consumers who thought that they would live in their homes for the long haul, but then due to circumstances that were a surprise to them, they have now decided to leave in the next few years.
Actually, the refinance boom is indeed over. However, there are a fair amount of people that still need to refinance. There are a stunning amount of home equity lines (HELOCs) outstanding and most people will need to refinance those. Most HELOCs were set up so that the first ten years of the loan only require interest only payments and no principal is due. Then, in year 11, the principal would start to amortize. And it amortizes over 20 years, not 30. This is a problem because
The Home Affordable Refinance Program (HARP) is a mortgage assistance program, set up by the Federal Housing Finance Agency in March 2009 to help underwater and near-underwater homeowners refinance their mortgages.
After the housing market crash in 2009 many homeowners were faced with a situation where their house was considered “underwater”. In this scenario, the house value was less than the mortgage loan cost, in other words, having a negative equity value in the home. Refinancing was not an option, nor was selling the home unless they paid the lender for the difference. Unfortunately, this lead many homeowners into foreclosure.
When refinancing consider your life of loan costs. Refinancing doesn’t save you money unless you calculate in the interest that you’ve already paid. Especially when you think you’ll own the house for the long haul or forever. If you pay $2,500 a month in principal and interest, you are going to pay $900,000 over the life of a 30-year mortgage. If you are 4 years into the loan and are going to refinance to a principal and interest payment of $2,800 you are going to save $200 a month, correct? Wrong!
I often get asked, “Why can’t I refinance? I make my payments now”. Rates are still very, very low by any measure. Even though they have gone up some in the past few months, rates are low. We went through a refinance boom in 2010. But there are still plenty of people who want to refinance. Many of them can, and some cannot. Why can’t they?