It surprised me how many people I talked to this week that don't have a 'mortgage guy'. What do I mean by 'mortgage guy' (or gal, if she's from Texas)? That's the person that did your last loan, set some targets for you to consider refinancing, and then called you when those targets were met.
I've heard stories that 60% of the loan officers in the country have not renewed their licenses for next year. If your mortgage guy was one of them, maybe that's a good thing for you.
So, who should you work with next time? Well, there are 4 basic sources for you.
1. Go to your local bank. You should find a nice, well-dressed, loan officer, who also wants to open a checking account for you to meet his/her bank's goals. They have one set of rates/products, so if they happen to have the best rates on the day you walk in, and the market is also at a low point, you have it made. Trouble is, you'll never know if they have good rates or not, as they can't shop for you.
2. Check out an Internet loan shopping site. Yikes! It's usually more enjoyable easier to visit the dog pound wearing ground beef underwear. When you fill out a form on a loan searching website, your email and phone number will be sold to several companies who hire aggressive tele-marketers to sell you their service. The rates may be lower, but the path to that low rate can be really tough.
3. Work with a Mortgage Broker. Independent, a variety of lenders, and usually more experienced than a local bank loan officer. They get paid by matching up borrowers with lenders. Mortgage brokers will be paid either an Origination Fee by the borrower, or 'Yield Spread Premium' (YSP) from the lender. The lender will pay YSP when the broker brings the lender a loan with a higher rate that the 'Par' offering. With a Broker, you have the choice to pay an Origination Fee in exchange for the lowest Par rates, or, accept a slightly higher rate and the lender will compensate the Broker with the YSP. Be sure to ask the Broker about his total compensation, and the breakdown between YSP and Origination Fees. Mortgage Brokers don't lend their own funds, so they don't control the underwriting or funding of the loans. This can sometimes be nerve-racking, especially when the lenders get busy, as the broker just hopes for the best.
4. Work with a Mortgage Banker. Like Brokers, Mortgage Bankers are usually more experienced and work with a variety of lenders so that they can shop interest rates for you. The key difference is that Mortgage Bankers control the whole transaction from start to finish, and after closing will transfer your loan to the lender that they originally locked in the interest rate with.
I've worked for Banks, Mortgage Brokers and Mortgage Bankers. I found the Mortgage Banker business plan gives me the best opportunity to get great rates and superior service for my clients. I get the flexibility of multiple lenders to shop for rates but keep control of the process so I can meet my clients expectations and time frames.
When you are looking for your next mortgage, find out what business model a prospective loan officer works in, and decide in advance what is most important to you: variety of rates, service level, ease of transaction, and control of the process. For more information, visit my website at www.piedmont-mortgage.com.
Wednesday, December 24, 2008
Monday, December 22, 2008
Refinance basics & Strategy
As mortgage rates have fallen (and risen) in the past couple of weeks, there are a lot of homeowners considering refinancing their home. If you are one of those people, don’t just lock it in and close it. It’s all about timing. If you lock a rate out of emotion or fear (which most loan officers force you to do), you’ll end up paying more than you should.
If you have patience and work with someone that will watch rates for you, you can lock in when rates swing lower. These rate dips normally lasts for a couple of hours, but if your lender is watching things closely, they can lock you in, based on targets that you agree on ahead of time.
Basic Questions
Lots of people have asked me what ‘refinancing’ actually is. It’s not a silly question, it’s not like you learn this stuff in school! So, here’s my ‘Refinancing basics′ blog post. Of course, if you have questions — feel free to contact me (tom@piedmont-mortgage.com).
In general, a mortgage is a contract between a bank and borrower, defining the terms by which a home loan must be repaid.
The paperwork, signed by both parties, includes agreements for things such as:
The interest rate
The length of the loan
The amount of money to be borrowed
But, like all loans, a mortgage loan can be paid off at any time. So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one. (prepayment penalties can complicate things - if you have one or aren't sure, I can review your original paperwork and help you strategize a way around that).
This process is most commonly known as a refinance.
What Is It?
A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment. When the refinance process is complete, the original lender’s loan is paid in full using the money from the new lender’s loan and the former’s relationship is officially terminated.
There’s no rule against how many times a person can refinance, nor are there any rules of thumb to determine whether or not a refinance makes sense. In general, if you can reduce your total financing costs over time, refinancing is a sound financial decision.
What if you just purchased or refinanced your home? The money you spent on your existing loan closing can't be recovered - Points, Origiantion Fees, etc were all related to the previous loan. When you refinance, you get a brand new loan, so most of the costs will will have to recur. However, if the new loan and closing costs save you money over time compaered to your existing loan, there is no reason to stick with a more expensive loan just because you already paid for it.
Besides a lower monthly payment, there are other reasons to consider refinancing, including:
Convert from an ARM (or Adjustable Rate Mortgage) into a fixed rate mortgage (or vice versa)
To extract equity for paying off third-party debts or for cash
To extend a loan from 15 years to 30 year for payment relief
To shorten the term of the loan from 30 years to 15 or 20
When you refinance, there are a couple of other things to be aware of:
- You will get a refund of your currrent escrow account after your existing lender is paid off. Your lender has 30 days to mail you a check for your escrow balance.
- You always skip one or two mortgage payments when you refinance. Often, the skipped payment can cover all the closing costs. When your current loan is paid off, the payoff balance will include the interest since your last payment (so the payoff is higher than the balance). At closing, you prepay the interest from the funding date to the end of the month, so no payment if due on the 1st of the next month. If your new mortgage funds before the 15th of the month, you can skip your last payment to your existing lender, and the prepaid interest means you skip the next payment, so you end up skipping two payments if you close early in the month.
You still pay interest every day you have a mortgage, but the way interest is paid on the old loan and the new loan allows you to skip 1-2 payments. It's really an accounting trick, however, not free money.
- Your existing lender has no special offers for you, just a good marketing idea. On your mortgage statement, there is always a toll-free number to call to refinance. When you do this, you will usually get a college intern that is trained to a) keep you in your same loan at the current higher rate or b) keep you with them although you refinance into a new loan. Your existing lender only has one option for you - theirs. An independant mortgage banker (like myself) can compare more than one lender's rates, so if your current lender doesn't have the lowest rate, an independent mortgage banker can find you a new lender who really wants your business. realize that if you work directly with a bank, your loan officer is employed by the bank, so he can't represent you. An independent loan officer can represent you.
Don’t Rush It. Work With Someone That Has YOUR Best Interests In Mind. I like to say that the lowest interest rate we offer is your best interest.
Make sure you’re waiting until a ‘bottom’ for mortgage rates. Make sure your loan officer can help you set a target interest rate that is realistic. Be ready to move quickly by having a completed application on file and credit report run. Then wait for the call that we love to make - it's time!
Trust me, it will not be a large window of time, work with someone that knows what they’re doing. There are some extremely talented mortgage professionals in town. If they are not certified, ask them why, or find someone who is - shouldn't the person trying to help you acquire the largest debt you likely have, care enough to get an advanced certification?
If you have patience and work with someone that will watch rates for you, you can lock in when rates swing lower. These rate dips normally lasts for a couple of hours, but if your lender is watching things closely, they can lock you in, based on targets that you agree on ahead of time.
Basic Questions
Lots of people have asked me what ‘refinancing’ actually is. It’s not a silly question, it’s not like you learn this stuff in school! So, here’s my ‘Refinancing basics′ blog post. Of course, if you have questions — feel free to contact me (tom@piedmont-mortgage.com).
In general, a mortgage is a contract between a bank and borrower, defining the terms by which a home loan must be repaid.
The paperwork, signed by both parties, includes agreements for things such as:
The interest rate
The length of the loan
The amount of money to be borrowed
But, like all loans, a mortgage loan can be paid off at any time. So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one. (prepayment penalties can complicate things - if you have one or aren't sure, I can review your original paperwork and help you strategize a way around that).
This process is most commonly known as a refinance.
What Is It?
A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment. When the refinance process is complete, the original lender’s loan is paid in full using the money from the new lender’s loan and the former’s relationship is officially terminated.
There’s no rule against how many times a person can refinance, nor are there any rules of thumb to determine whether or not a refinance makes sense. In general, if you can reduce your total financing costs over time, refinancing is a sound financial decision.
What if you just purchased or refinanced your home? The money you spent on your existing loan closing can't be recovered - Points, Origiantion Fees, etc were all related to the previous loan. When you refinance, you get a brand new loan, so most of the costs will will have to recur. However, if the new loan and closing costs save you money over time compaered to your existing loan, there is no reason to stick with a more expensive loan just because you already paid for it.
Besides a lower monthly payment, there are other reasons to consider refinancing, including:
Convert from an ARM (or Adjustable Rate Mortgage) into a fixed rate mortgage (or vice versa)
To extract equity for paying off third-party debts or for cash
To extend a loan from 15 years to 30 year for payment relief
To shorten the term of the loan from 30 years to 15 or 20
When you refinance, there are a couple of other things to be aware of:
- You will get a refund of your currrent escrow account after your existing lender is paid off. Your lender has 30 days to mail you a check for your escrow balance.
- You always skip one or two mortgage payments when you refinance. Often, the skipped payment can cover all the closing costs. When your current loan is paid off, the payoff balance will include the interest since your last payment (so the payoff is higher than the balance). At closing, you prepay the interest from the funding date to the end of the month, so no payment if due on the 1st of the next month. If your new mortgage funds before the 15th of the month, you can skip your last payment to your existing lender, and the prepaid interest means you skip the next payment, so you end up skipping two payments if you close early in the month.
You still pay interest every day you have a mortgage, but the way interest is paid on the old loan and the new loan allows you to skip 1-2 payments. It's really an accounting trick, however, not free money.
- Your existing lender has no special offers for you, just a good marketing idea. On your mortgage statement, there is always a toll-free number to call to refinance. When you do this, you will usually get a college intern that is trained to a) keep you in your same loan at the current higher rate or b) keep you with them although you refinance into a new loan. Your existing lender only has one option for you - theirs. An independant mortgage banker (like myself) can compare more than one lender's rates, so if your current lender doesn't have the lowest rate, an independent mortgage banker can find you a new lender who really wants your business. realize that if you work directly with a bank, your loan officer is employed by the bank, so he can't represent you. An independent loan officer can represent you.
Don’t Rush It. Work With Someone That Has YOUR Best Interests In Mind. I like to say that the lowest interest rate we offer is your best interest.
Make sure you’re waiting until a ‘bottom’ for mortgage rates. Make sure your loan officer can help you set a target interest rate that is realistic. Be ready to move quickly by having a completed application on file and credit report run. Then wait for the call that we love to make - it's time!
Trust me, it will not be a large window of time, work with someone that knows what they’re doing. There are some extremely talented mortgage professionals in town. If they are not certified, ask them why, or find someone who is - shouldn't the person trying to help you acquire the largest debt you likely have, care enough to get an advanced certification?
Thursday, December 18, 2008
Refinancing - Act now, or wait?
You'll Get The Best Mortgage Rates If You Watch Certain Patterns
When it comes to mortgage rates, sometimes it's better to "act now".
On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.
On Wednesday, however, the markets had second thoughts.
After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.
As a result, mortgage markets unwound.
At first, the exit was a slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.
In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.
Sharp rate drops tend to be followed by immediate bounce-backs, it seems.
But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.
Going forward, mortgage rates may fall, or they may not. We can't possibly know. But we've now seen the pattern 3 times now -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.
Sleeping on it for even one night may end up costing you dearly.
However, all is not lost - rates today are again very volatile and very low, so be ready, work with a mortgage planner that is watching the market and set a target lock rate so that you are ready to pull the trigger when you get the rate you want.
When it comes to mortgage rates, sometimes it's better to "act now".
On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.
On Wednesday, however, the markets had second thoughts.
After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.
As a result, mortgage markets unwound.
At first, the exit was a slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.
In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.
Sharp rate drops tend to be followed by immediate bounce-backs, it seems.
But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.
Going forward, mortgage rates may fall, or they may not. We can't possibly know. But we've now seen the pattern 3 times now -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.
Sleeping on it for even one night may end up costing you dearly.
However, all is not lost - rates today are again very volatile and very low, so be ready, work with a mortgage planner that is watching the market and set a target lock rate so that you are ready to pull the trigger when you get the rate you want.
Tuesday, December 16, 2008
Fed Rate cuts please Mortgage Market
Explaining The Federal Reserve In Plain English (December 16, 2008)
The Federal Open Market Committee voted to cut the Fed Funds Rate by at least three-quarters percent today. The benchmark rate now rests in a range of 0.000-0.250 percent.
In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:
The U.S. job market is deteriorating
Consumer spending levels are falling
Business investment is contracting nationwide
The Fed intends its rate cut to provide stimulate to each of these areas.
In addition, the voting members of the FOMC singled out inflation as a diminishing threat to the economy. This is an important admission because it's well-known that cuts to the Fed Funds Rate can spark inflation. Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today's historic cut.
In its announcement to markets, the Fed gave The People what they wanted -- a reassurance that the policy-making group would "employ all available tools" to help turnaround the economy. Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.
After the announcement, stock markets rallied and mortgage bonds did, too. Rates ended the day slightly lower. http://www.piedmont-mortgage.com/
SourceParsing the Fed StatementThe Wall Street Journal OnlineDecember 16, 2008http://online.wsj.com/internal/mdc/info-fedparse0812.html
The Federal Open Market Committee voted to cut the Fed Funds Rate by at least three-quarters percent today. The benchmark rate now rests in a range of 0.000-0.250 percent.
In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:
The U.S. job market is deteriorating
Consumer spending levels are falling
Business investment is contracting nationwide
The Fed intends its rate cut to provide stimulate to each of these areas.
In addition, the voting members of the FOMC singled out inflation as a diminishing threat to the economy. This is an important admission because it's well-known that cuts to the Fed Funds Rate can spark inflation. Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today's historic cut.
In its announcement to markets, the Fed gave The People what they wanted -- a reassurance that the policy-making group would "employ all available tools" to help turnaround the economy. Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.
After the announcement, stock markets rallied and mortgage bonds did, too. Rates ended the day slightly lower. http://www.piedmont-mortgage.com/
SourceParsing the Fed StatementThe Wall Street Journal OnlineDecember 16, 2008http://online.wsj.com/internal/mdc/info-fedparse0812.html
Wednesday, December 10, 2008
Short Term ARMs a solution?
Should People with Jumbo loans be looking at the 1 month LIBOR ARM as a solution? Now that the LIBOR spread has come back to normal, the 1 month LIBOR may be the best way to finance a home for the next few years. With the LIBOR at 1.82% and a margin of 1.75%, the interest rate today is 3.57%. The best rate for a Jumbo 30 year fixed right now is around 7.0%. The monthly savings on a $600,000 mortgage is $1,273 per month. Keep that $1,273 per month aside in a CD at 4.0% and it will grow to $43,000 in just 3 years. The LIBOR will go back up again, but not until the current financial mess is over and the Federal Reserve starts raising rates again.
The 1 Month LIBOR mortgage is a great way to save a tremendous amount on interest payments over the next few years. Be ready to refinance when Jumbo fixed rates drop or LIBOR rates look like they will increase higher than current fixed rates.
The 1 Month LIBOR mortgage is a great way to save a tremendous amount on interest payments over the next few years. Be ready to refinance when Jumbo fixed rates drop or LIBOR rates look like they will increase higher than current fixed rates.
Wednesday, December 3, 2008
Gas Prices Fall and Real Estate sells?
Today was the 78th consecutive day that gas prices have fallen. (Anyone want to buy a real nice 2006 Ford Expedition? I need to get the bigger Ford Excursion to pull our camper!) What do gas prices have to do with real estate sales? it's a thing called the wealth effect, or the emotional impact people feel when they have more money in their pocket. So, since gas is lower by half since July, consumer confidence is rising from its October lows, and Black Friday was better this year than last year for retailers.
The wealth effect does a lot to get prospective home buyers out looking and closer to buying.
Also, with oil & commodity prices dropping, the threat of inflation is dropping, so interest rates are as low as they've been in at least three years.
The wealth effect does a lot to get prospective home buyers out looking and closer to buying.
Also, with oil & commodity prices dropping, the threat of inflation is dropping, so interest rates are as low as they've been in at least three years.
Monday, December 1, 2008
Forecast for the week of Dec 1st
Government action fueled a mortgage market rally last week, leading mortgage rates lower for the second consecutive week.
Despite soft housing numbers and evidence of a slowing economy, mortgage rate shoppers found reason to celebrate:
Citigroup was "rescued"
Wall Street liked the new economic team
The government pledged $600 billion to buy investment-grade mortgage bonds
These 3 elements helped drive mortgage rates to their lowest levels since January 2008 -- in some cases shaving a full percentage point off the offered rate.
Homeowners responded to the dip and refinance activity reached "a frenzy". As evidence, at least one national mortgage bank reported more loans were locked on Tuesday, November 25 than for the first 24 days of the month combined. Anecdotally, other lenders saw similar action.
However, low rates rarely stick around.
The last time that rates like they did last week, markets recovered within a week and rates returned to "normal". This week provides ample chance for that to happen again.
Throughout the early part of the week, 5 members of the Fed will make public appearances, including Fed Chairman Ben Bernanke. With the Fed's next meeting scheduled for December 15, markets will be looking for clues about how the Fed may change the Fed Funds Rate.
When the Fed Funds Rate falls, mortgage rates tend to rise on the news.
Then, on Thursday, retailers start announcing their "same store" sales figures for November. This will clue us in to the true health of the economy because consumer spending accounts for two-thirds of it. If same-store sales are dramatically lower, expect calls for a large Fed Funds Rate cut.
And lastly, Friday brings us the jobs report. As terrible as the employment reports have been this year, it will take an especially higher number of jobs lost in November, or an exceedingly high Unemployment Rate to have much of an impact on mortgage rates.
This month, weak jobs data should be harmful to mortgage rates because more out-of-work Americans may lead to more mortgage defaults nationwide, plus additional Fed Funds Rate cuts.
Despite soft housing numbers and evidence of a slowing economy, mortgage rate shoppers found reason to celebrate:
Citigroup was "rescued"
Wall Street liked the new economic team
The government pledged $600 billion to buy investment-grade mortgage bonds
These 3 elements helped drive mortgage rates to their lowest levels since January 2008 -- in some cases shaving a full percentage point off the offered rate.
Homeowners responded to the dip and refinance activity reached "a frenzy". As evidence, at least one national mortgage bank reported more loans were locked on Tuesday, November 25 than for the first 24 days of the month combined. Anecdotally, other lenders saw similar action.
However, low rates rarely stick around.
The last time that rates like they did last week, markets recovered within a week and rates returned to "normal". This week provides ample chance for that to happen again.
Throughout the early part of the week, 5 members of the Fed will make public appearances, including Fed Chairman Ben Bernanke. With the Fed's next meeting scheduled for December 15, markets will be looking for clues about how the Fed may change the Fed Funds Rate.
When the Fed Funds Rate falls, mortgage rates tend to rise on the news.
Then, on Thursday, retailers start announcing their "same store" sales figures for November. This will clue us in to the true health of the economy because consumer spending accounts for two-thirds of it. If same-store sales are dramatically lower, expect calls for a large Fed Funds Rate cut.
And lastly, Friday brings us the jobs report. As terrible as the employment reports have been this year, it will take an especially higher number of jobs lost in November, or an exceedingly high Unemployment Rate to have much of an impact on mortgage rates.
This month, weak jobs data should be harmful to mortgage rates because more out-of-work Americans may lead to more mortgage defaults nationwide, plus additional Fed Funds Rate cuts.
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