Yesterday I was talking to a home owner that was toying with refinancing his property and had some questions that he needed answers. It surprised me that he wanted to know the difference between Rate and Term Refinance versus Cash Out Refinance. The reason that this surprised me so much is that most people do not know this terminology unless they are in the business or currently in the process of doing a loan. In the case of this borrower, his was the latter.

So, basically, I broke Rate and Term down for the home owner in this simple statement; Rate and Term Refinance is typically accomplished when all that you are paying off is the existing loans that were used to purchase the home. In some cases lenders will also consider a Rate and Term Refinance when the second loan that is being paid off was acquired after the purchase and the money was used to improve the property. The latter clause is not a rule of thumb, so please check with your lender. Also, some lenders will allow up to $2000 in cash out or to pay off bills in this type of refinance. As for cash out, I am going to defer to PREP’s residential mortgage guru, Fred Chamberlin for his complete explanation of this product.

Now that you have the picture of both products, let me add this in for you. Typically, most lenders will offer a lower interest rate on a Rate and Term product. The difference will not be huge, but it could be an extra $25 to $50 in your packet each and every month, and that is huge in itself.

It will not come as a surprise to anyone that banks all over the world have been in severe trouble as the global economic woes impact most segments of the financial industry. I have read numerous articles, and written a few myself, about when the bottom of this crisis would be reached. Back on January 9th, I happily wrote a post entitled Rebounding Markets in which I discussed the flurry of reports on the bottom of the economic markets having been reached.

Today, Wells Fargo released its first quarter numbers. The first quarter profits for Wells Fargo have surpassed all of the most optimistic Wall Street predictions. Wells Fargo’s acquisition of Wachovia last year prompted a loss of over 50% of its profits. In spite of this loss that was directly related to the large stock of delinquent home loans held by Wachovia, the home loan sector of Wells Fargo generated $100 billion worth of closed mortgages in the first quarter. Prompted in part by the lowest interest rates since 1971 (source: Board of Governors of the Federal Reserve System), President Barrack Obama said today that refinances for March rose by 88% and represent 75% of loan applications.

Still think we haven’t reached the bottom?

For many months now consumers have been hearing that this is a buyer’s market. From television ads produced by the National Association of Realtors (NAR) to blogs coming from all corners of the internet the chorus of voices is growing. If this is indeed a buyer’s market, why are so many people still sitting on the fence? I know that many people will claim that they cannot get financed and in some cases that may be true. The guidelines have become more stringent, the stated income, stated asset loans that helped to usher in the current housing climate are no more. If you are wanting an investment property you are going to have to make an investment of some of your capital to get it! In the following article by Fred Chamberlin he takes a look at fence sitters when it comes to refinancing. Similar to those who are waiting to purchase, there are those who continue to hold out on actual monetary savings they could realize through a refinance. With the record low interest rates he provides concrete evidence to spur people to refinance and save money on their mortgage.

Via Fred Chamberlin of FHA Loans Oregon:

The Federal Reserve has been purchasing Mortgage Backed Securities for some time now and mortgage rates still aren’t at 4.5%. So ,what gives? Well the answer is really not that hard, nor is it that simple. First of all you need to understand what Mortgage Backed Securities are and how coupon rates compare to the actual interest rate. Below is the chart of MBS purchases from the New York Fed, Feb. 12-18. You can look at their site here.

Take a look at the Coupon and the amount of purchases (in the millions) from FHLMC (Freddie Mac), FNMA (Fannie Mae) and GNMA (Ginnie Mae). As you can see, most of the MBS are 30 year and there is very little 15 year being purchased.

Now, if you notice, the majority of these purchases are in the 4.5 and 5% coupons, although other coupons are also being bought. So, what does a 4.5% Coupon really mean? Is that the rate being offered to the consumer? Short answer – No!

The difference between the “coupon rate” and the interest rate offered to the borrower is what the originating firm, the wholesaler, the agencies like Fannie and Freddie, and the Wall Street securitizing firm get to put the product together. At 4.5%, the interest rate the customer pays will probably be 5.5 or 5.75%. So, what does that mean about what the Fed is doing? Well, they are being pretty smart, they are buying the higher coupons that will probably be paid back in fairly short order as rates drop. Like the 5, 5.5 and 6% coupons are being paid right now with rates hovering around 5%.

So, will rates drop to 4.5%? Will they drop to 4%? I can’t tell you. What I can say is that if it makes sense to refinance or purchase at 5%, it might be a good idea to do that now. Trite it might be, but “A Bird in the Hand, is Worth Two in the Bush!” When you are at 6.5%, a 5% interest rate is better than not having a 4.5% interest rate. Give me a call today to discuss your specific issues. Every person and every loan is different. 541-342-7576.

When you work with a professional they listen to your needs and hopes; they talk to you in a way that you can understand even if it is something you know little about. In short the same qualities that many of us look for in friends are the very same qualities we look for in professionals. Do you have that level of comfort and understanding with the professionals in your life? In the following article, Danny Thornton explores the importance of a good working relationship with your real estate industry professionals.

Via Danny Thornton:

When I have talked to people over the last 6 to 8 months, it seems one of their biggest concerns is whether or not their loan officers are giving them the best loan for them. Too many times have I witness loan officers getting on a kick of selling just FHA loans and frankly ignoring USDA, VA, or even conventional loans. The problem with this is that they might not be getting you, the consumer, the best loan for your circumstances.
Let me give you an example of what I mean. A few months back I had a customer call me distraught. The lender that they had contacted previously had qualified them on a conventional loan and the customer had to bring almost $20,000 to the table. The down payment was 10%. After asking a few questions, I found out that the customer was a veteran. Upon realizing this, I immediately thought of the VA loan. In this case, he could get in the home at 100% financing, pay his closing cost, and still have money in the bank for a rainy day. With the conventional loan, he would have been tapped out in the bank.
After digging a little deeper, I realized that this mishap was not the fault of the loan officer though. When I went to their website, I found out that they were not licensed to sell VA or FHA loans. This is something that is very important to know going in when dealing with a mortgage company. Also, another thing to take into consideration is the fact that just because a lender is licensed FHA or VA, it does not mean that they also carry all the products that either of them has available.

I came across this article yesterday and thought it made some excellent points regarding how the Libor Index which directly affects Adjustable Rate Mortgages (ARMs) has been behaving. There is a lot of concern now for most people whose loans are scheduled to reset or adjust. The obvious concern is that when an ARM reaches its adjustment period it will automatically skyrocket making the home no longer affordable for the homeowner. In the following article there is some great information about why this may not necessarily be the case any longer.

Via Fred Chamberlin of Eugene Loan Guy

Did you get an adjustable rate mortgage two to three years ago? Are you in a panic because it is time for it to adjust? Maybe panic is not the right thing to be feeling right now. Maybe satisfaction that you did something good is the way to be feeling right now. Eugene and Springfield property values have dropped some, not as bad as other areas, but enough that refinancing is not always possible. But it probably is time to be thinking about what your refinancing options are. Consider these two scenarios:

1. You bought your home almost three years ago on a conventional 3/1 ARM at 6.5% interest. Most generally this ARM has a margin of 2.25% and is based on the 1 year LIBOR (London Interbank Offered Rate). Your loan is scheduled to adjust on April 1, 2009. What is going to happen? To figure this out, you need to look at what the index and the margin are together. The index is currently at 1.89% and when added to the margin that give your a total of 4.14% if it were adjusting in March. Since most lenders round up to the nearest .125% that would make the new rate 4.25% except the maximum adjustment up or down is only 2% so the new rate would be 4.5%. Saving your money every month over what you are paying currently.
2. You bought your home almost two years ago on a sub-prime 2/1/6 ARM at 7.5% interest. This loan has a 5.4% margin and is based on the 6 month LIBOR. I is a six month adjustable and has a maximum 1% up or down adjustment. (Please note: some sub-prime loans have a floor rate of the start rate and will not adjust below the start rate.) In this example, the index is 1.55% plus the 5.40% margin so the rate could go down to 6.95% rounded up to 7% or stay the same.

Just because you have an ARM is not necessarily a reason to panic. Determine what your options are. Fixed rates are excellent for stability, but ARMs are also good when rates go down. What you need to do is determine what your loan is scheduled to do and when it will do it. Make sure you know what makes sense for your situation. If you have difficulty reading the documents and need help determining what will be happening with your loan, give me a call. I am happy to look it over and make suggestions. If a refinance is right for you, I will let you know that. If it isn’t in your best interest, I will tell you that also.

Over my years in the mortgage industry I have seen a lot of things that I question. A lot of those questions are based on what the title of this article states. Typically, if you have a fixed interest rate, what sense does it make to refinance that rate to attempt to get it lower. Going from a 5% to 4.5% really is not going to make it enough difference to offset the cost of the loan.

Fred Chamberlin makes a good post out of this topic and if you have yet to read his, you need to.

Via Fred Chamberlin – Eugene/Springfield’s #1 Experienced FHA Mortgage Consultant:

I have been thinking for sometime about refinances. I have been hoping that rates would drop enough that it made sense for some of my clients to refinance both so it would increase my business but also so it would put them into a better financial situation. To be real honest and boastful, I did such a good job the first time, fewer people needed a lower rate because they were already in a darn good interest rate. So, what I did was put together a couple of scenarios of different type of refinances. I originally posted this on MyFHAMortgageBlog. I hope it answers some questions for you.

Posted by Fred Chamberlin

January 14, 2009

Mortgage interest rates have dropped dramatically and are current at or near a 27 year low. That means you can save money on your mortgage payment every month, right? Well, the definitive answer to that is, MAYBE! Just because you can get a lower interest rate, doesn’t mean it is in your best interest to do so. Whether it is a conventional refinance or an FHA or VA refinance, a lot depends on what you have now and what you expect to accomplish.

The easiest way to show this is to give a couple of fictional examples. (These are conventional loan examples) First of all, let’s consider that your have a high interest rate on a small loan. For this example, assume you owe $60,000 on a home worth $200,000 and are paying 7.5% on a 30 year loan and are 7 years into the loan. Would a refinance at 5%*** be worthwhile? Conventional wisdom is that if you are saving 2% or more, it is a good move. Let’s take a look:

Current Payment—-Proposed Pmnt Hard—- Cls Costs*

$457————– $341/$388** —————$3,500

Recovery of costs in approx. 69 months.

So, if you are going to be in your home for at almost 6 more years, this makes sense. If you are going to be there less time, it doesn’t and if you are not sure, it probably is a bad move for you.

Now, how about a different scenario? Assume you have a mortgage of $350,000 at 6.5% with 26 years remaining on a home value of $450,000.

Current Payment—–Proposed Pmnt——Hard Cls Costs*

$2,327——— $1,911/$2,041** ———-$6,000

Recovery of costs in approx. 21 months.

So here, you can see that a 1.5% change can more than pay for itself in less than two years. The interesting thing is that the 2% rule really doesn’t apply in either case. In one case 2.5% is not enough and in another 1.5% is.

* Cost associated with loan, doesn’t include prepaid expenses.

** New 30 Year mortgage payment/Payment to maintain current pay off schedule

***Used only for comparison purposes, not an offer.

These are just two examples. Every loan is different. There are no hard and fast rules. An FHA cash out refinance might be the best thing for you. If you use your home to pay off credit cards, what are your plans? Not doing anything might be the best thing for you. If you have a second on your home currently and it wasn’t used to purchase the home, to pay it off would make it a cash out refinance. They are priced differently.

There are a lot of other things to consider when thinking about a refinance. Are you looking to pay other items off? What is my loan to value? What is my credit score? The way to find out if a refinance is the right thing to do is to talk to a professional in the business. I am always available to answer your questions regarding refinancing or purchase. Rates are great, but that isn’t the only thing to be concerned with when considering a mortgage loan. Is it right for you? Should I put more down or borrow more? FHA/VA/USDA loans may be the way to go instead of conventional. FHA allows cash out refinancing up to 95% loan to value. VA cash out refinances are available up to 100%. USDA doesn’t do refinances but has purchase money available up to the appraised value even if it is over the purchase price. Check with someone you trust for up to date and good information for YOU! FHA Streamline Refinances and VA IRRRLs are almost always a good move.

In a post by Sandy Noll she not only poses the question to the current homeowner and prospective home buyer, Is now the time to buy or refinance? She also gives you one of the most important tools in helping you to make that decision. More than a traditional mortgage calculator, the link allows you to input different variables like current vs. future home value and different interest rates. Hint to using the tool, the green box in the right hand quadrant it the control for the Sales Price Comparison and the Payment Difference charts. I hope you find this post useful.

Via Sandy Noll: Your Realtor of Choice for King, Snohmish, and Yakima County Washington:

We’ve all heard that this is a GREAT time to buy real estate because interest rates are at historic low rates, but what does that really mean?  And what about those of you that are waiting until the home prices drop just a little bit more to make your move to buy?  And how about those wondering if they should refinance a loan they got a couple years ago?

To help answer all these questions and quite possibly more click on this link www.loancentral.com/SandyNoll to use a really cool interactive tool that just might shed some light on yours or someone else’s situation and help answer the question, “What should I do”.  Oh, you don’t have to register to use the tool either!!

If you have questions or need help interpreting the results after using the tool, feel free to call me and we’ll walk through it!  Also feel free to forward this email to everyone you know so they too can see what interest rates vs lower home prices actually do to payments!!

BE SURE TO CLICK ON THE LINK ABOVE……YOU’LL BE GLAD YOU DID!!  GO AHEAD AND CLICK….YOU KNOW YOU WANT TO!!

With a resounding ring, the new year was ushered in by billions of people all over the world. For some, they were glad to get 2008 behind them. For others, they were glad to get 2009 started. For me, I fall in the second group. I am excited in what I see happening in the housing market here in American. Do I think that it is going to create a wealth of income for fly-by-night professionals as it did in the 90′s? No, not even close, but it will create a steady stream of income to the professionals that get into it for the right reasons.

At this point and time, it is a great time to buy or refinance. Rates are historically low, but if you are a person that likes to play the waiting game, this is truly not a market that you want to be in. It is not stable and the rates do not sit still. What a loan officer might quote you today might be gone tomorrow. It might change for the better and it might change for the worse. It is almost like playing Russian Roulette. Personally, I do not think that it is worth the wait.

If  were in the market to buy or refinance and I get approved, I am jumping in the market. That opportunity might not appear tomorrow or next week. We live in a time and age that we have to be in the now. That means, if you want to take some time to think about it, 24 hours is not on the table any more.

One for the things that readers know about me is I have always been a straight shooter and will continue to do that. I am always going to make it positive but I am not going to sugar coat the truth. If it was ugly, I would tell you it is ugly. Frankly, I can not see half of these things that people talk about. I hear people saying that it is harder to get a loan. Frankly, I cannot see that. If you mean that you can not just call up and tell the lender how much you make and how much is in the bank, then I guess you are right. Those loans are long gone and should have never been so loosely offered.

With that said, as long as you meet the criteria having a job, making money, and paying your bills, then you need to be taking to a competent loan officers. These are the only people that can tell you for sure if you qualify.

As always, if you have questions, do not shy away from asking. I will be brutally honest with you.

Mortgage interest rates are at historic lows. How many times have you heard that from real estate industry people, friends and family, and the guy who does your dry cleaning? While the rates truly are at historic lows many people are not taking advantage of the opportunity to either buy their new home or refinance their high interest rate to a (sometimes considerably) lower interest rate.

First I would like to take a look at mortgage interest rates for purchases. The chart to the right are the latest reported interest rates with a comparison to the previous week’s rates. As you can see there is some difference between the type of mortgage product selected. Another thing the chart does not show is that the interest rate will also vary based on the type of loan, conventional, FHA, VA, USDA and whether there are hits (increases) to the interest rate based on risk (often determined by the percentage of downpayment) Be sure to discuss what product types you qualify for and what loan type has what advantages and disadvantages. Except for conventional loans, the others are for primary residences only. If you have been qualified to buy a home and are prepared for the responsibility of home ownership, these interest rates coupled with lots of inventory on the market (in most markets) make this the ideal time to buy.

Next I want to examine refinancing from a higher interest rate to a current low interest rate. You see a chart to the right similar to the chart above. This chart shows the current interest rates for a refinance. As with the above, there is a definite difference based on the mortgage product selected and the type of loan. You should also know that you can refinance from one type of loan to another type of loan, for example a conventional loan to a FHA loan. Many people can see substantial monthly savings by reducing their monthly mortgage payment with a lowered interest rate. What represents an interest rate that is reduced enough to see substantial savings? Generally, using a 30 year fixed rate mortgage term, a 1% interest rate reduction on a $100,000 loan will yield approximately $70 a month in savings while the same 1% interest rate reduction on a $250,000 loan will yield approximately $160 a month in savings. This difference is important and a good reason that your savings should definitely be addressed with your mortgage professional.

When you hear that rates are at historic lows, you should definitely ask yourself, what that means for you.

Earlier today I came across this great article by Fred Chamberlin. The program he outlines in his post is excellent. Though there are some restrictions, they do not seem overly cumbersome. I would definitely recommend taking a few minutes to read this post if you are a veteran or a real estate professional who works with a lot of veterans.