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Why Refinance Rates Are Higher Than Purchase Loan Rates

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Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Posted on February 24th, 2020

Mortgage rates can be pretty volatile. Just like stocks, they can change daily depending on what’s happening in the economy.

Beyond that, mortgage rates can move based on news that doesn’t involve a report on the economic calendar, such as a jobs report, GDP, housing starts, inflation, etc.

Even if there isn’t a direct financial implication to a news story, mortgage rates can go up or down.

Just consider the recent conflict with Iran, which may have pushed mortgage rates down a little lower, even though it was unclear what the outcome would be.

It turned out to be a short-lived situation, despite any obvious conclusion or resolution, but that’s just one of many recent examples.

How the Coronavirus Could Affect Mortgage Rates

  • Fear of a global economic slowdown has hit financial markets
  • Dow Jones off nearly 1,000 points, Nasdaq down 350 points
  • Investors fleeing market for safety of alternatives like bonds
  • This has pushed the 10-year bond yield down near its all-time low

Now we’re dealing with what could be seen as a global pandemic in the spread of Novel Coronavirus (COVID-19).

It may or may not have originated in Wuhan, China, but it has rapidly made its way across the globe, with Italy just confirming a fifth death from the virus.

The World Health Organization (WHO) hasn’t yet declared the coronavirus outbreak a pandemic, but did say it has “pandemic potential.”

In other words, there’s a lot to fear due to the unknown and the very real loss of life, and that explains the recent pullback in the stock market.

At the time of this writing, the Dow Jones was off nearly 1,000 points and the Nasdaq was down over 350 points. And that’s after a bad Friday as well.

Part of that has to do with the fact that large companies like Apple have already warned of profit hits due to global supply chain issues, which may affect sales.

The trillion-dollar company acts as a bellwether to other large corporations and the economy at large.

In short, when bad news happens, stocks go down. This is the market’s natural tendency to flee the volatility of the stock market for the relative safety of the bond market.

Some investors may also seek out “safe haven assets” such as gold, which tend to perform well in times of fear and despair.

There is typically a negative correlation between stocks and bond prices, and so today we’re seeing a big drop in the 10-year bond yield.

Long story short, when bond yields drop, so too do mortgage rates.

The Coronavirus Has the Ability to Push Mortgage Rates to All-Time Lows

  • 30-year fixed rates are only about .25% above all-time lows
  • Won’t take much for mortgage rates to test new records
  • Impact will depend on whether coronavirus spreads or slows
  • Watch out for a quick reversal if any good news surfaces

We know investors are quick to ditch risk when there’s uncertainty in the air. But the bigger question is will this pullback be meaningful?

Will it actually matter in a few months (or even a few weeks), or will it turn out to be just another headline that goes away once things settle down?

Hopefully it does get resolved soon for the sake of anyone affected.

But because we don’t have those answers yet, there’s a good chance stocks will continue to fall, at least in the short term.

As such, expect increased downward pressure to apply to mortgage rates too, which might be good news for those looking to refinance a mortgage or purchase a home.

Of course, mortgage rates are already pretty rock-bottom, and not necessarily holding anyone back. It’s the sky-high home prices that are causing affordability issues.

And really, lower rates may just exacerbate an already hot housing market, which is ushering in a return to bidding wars.

With regard to how much rates might move, it’s not totally clear since the coronavirus outlook can change in an instant.

As it stands now, the 30-year fixed is averaging 3.49%, which is just 18 basis points (0.18%) above its all-time low, per Freddie Mac data.

It wouldn’t take a whole lot for rates to test new historic lows given the fear and uncertainty at the moment.

Conversely, mortgage lenders will be quick to adjust their rate sheets higher if there’s any glimmer of good news on the topic.

Remember, with rates already so low, it’s harder for them to move even lower than it is for lenders to stand put or simply increase them.

Read more: Why It Might Be Better to Apply for a Mortgage When Things Are Slow

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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If a Mortgage Lender Reaches Out to You, Reach Out to Other Lenders

Posted on November 9th, 2020

A lot of homeowners are looking to refinance their mortgages at the moment. That’s abundantly clear based on the record volume of refis expected this year, per the MBA.

And while mortgage rates are in record low territory, thus making the decision to refinance an easy one for most, it still pays to shop around.

I think we all have a tendency to care less about prices when something is on sale, but there’s no reason you shouldn’t strive for even better, regardless of how cheap something is.

Look Beyond Your Current Mortgage Lender

  • New technology is making it easier for lenders to improve borrower retention rates
  • This means using the same lender for life even if their interest rates aren’t the lowest
  • But like most things loyalty often doesn’t pay when it comes to a home loan
  • So take the time to shop around and negotiate like you would anything else

Thanks to emerging technology, it has become easier for mortgage lenders, mortgage brokers, and loan officers to improve their customer retention.

This means if and when a past customer looks to refinance their home loan or purchase a new home, they might be notified if they pay for such services.

There are companies that can keep an eye on your data over time to see if you’ve applied for a home loan elsewhere, if your home equity has increased, or if your debt load has gone up.

The same goes for your credit score, which if it’s improved enough, may prompt a call or email from a lender or broker you worked with in the past.

While this in and of itself isn’t necessarily a bad thing (sure, data collection is getting a little aggressive), it’s how you react to the sales pitch if and when it comes your way.

Ultimately, if you receive an inbound call or email regarding a mortgage refinance, HELOC inquiry, or even a referral from a friend or family member, don’t stop there.

They are just one of the many individuals/companies you should contact and consider before finalizing your home loan decision.

What If You Receive a Mortgage Mailer?

  • Consider an inbound solicitation a starting point if you’re considering a refinance
  • Don’t simply call the individual/company back and call it a day because they can offer a low rate
  • There are hundreds of mortgage companies out there and competition is fierce
  • Your mortgage will be paid for decades so every little bit matters if you care about saving money

I get mortgage solicitations all the time – and they’re often from a broker, lender, or loan servicer I worked with in the past.

They’re certainly appealing, don’t me wrong. Who doesn’t want to save potentially hundreds a month for simply redoing their home loan, especially if it’s from a trusted source?

But why stop at that mailer? Why not use that as a stepping stone to reach out to other lenders and get additional pricing and offers, then make your decision?

When we’re talking about something as important as a mortgage, which you pay each month for decades, the price you pay matters.

And even a small difference of say an eighth of a percent can equate to thousands of dollars over the life of the loan term.

As noted, companies are getting smarter every day when it comes to customer retention. Unfortunately, a customer retained is likely to miss out on even bigger savings elsewhere.

Don’t simply take the path of least resistance. Put in the time and you should save money.

This is even more critical for low-credit score borrowers, as a wider range of mortgage rates are quoted for those with lower scores.

But all homeowners can benefit from multiple mortgage quotes, as pointed out in a survey from Freddie Mac.

Those who gather just one additional mortgage quote can save between $966 and $2,086 over the life of the home loan, while those who take the time to get 5+ can save nearly $3,000.

So while your old company may make it easy for you to refi, you might be better served looking someplace else.

Read more: Mortgage Rate Shopping: 10 Tips to Get a Better Deal

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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Watch Out for Low Mortgage Rates You Have to Pay For

Posted on November 4th, 2020

Mortgage rates keep on marching lower and lower, with new records broken seemingly every week.

But with all the fervor surrounding mortgage rates, some lenders are playing the “how low can we appear to go” game.

For example, mortgage lenders may be talking about their lowest rates (with multiple points required), as opposed to offering their par rates, the latter coming at no extra cost to the consumer.

So instead of being presented with a mortgage rate of say 2.75% on a 30-year fixed, you may see a rate as low as 1.99%. Or even a 15-year fixed at 1.75%!

Here’s the problem; with mortgage rates breaking record lows time and time again, 10+ times so far in 2020, many homeowners are finding the need to refinance the mortgage twice. Or even three times.

And those who chose to pay points at closing, only to refinance within months or a year, essentially left money on the table.

Or they decide not to refinance to an even lower rate, knowing they’ll lose that upfront cost that’s already been paid, which is also a tough situation.

Mortgage Rates Aren’t as Low as They Appear

  • In order to advertise lower mortgage rates lower than the competition
  • Lenders will often tack on discount points to their publicized rates
  • Meaning you’ll have to pay a certain amount upfront to obtain the low rate in question
  • Make sure you’re actually comparing apples to apple when mortgage rate shopping

Guess what? That absurdly low mortgage rate you saw advertised isn’t really as low as it seems.

Typically, when you see a rate that’s beating the pants off the national average, and all other lenders, mortgage points must be paid.

And when the rate is really, really low, it usually means multiple mortgage points must be paid.

In other words, you wind up paying a substantial amount of money, known as prepaid interest, to secure an ultra low, below-market interest rate.

Assuming your loan amount is $200,000, two points to obtain a rate of 1.99% on a 30-year fixed would set you back $4,000.

If the loan amount were $400,000, we’re talking $8,000 upfront to secure that super awesome low rate.

Tip: Watch out for lenders and mortgage brokers who quote you a low mortgage rate, but neglect to tell you that you must pay a point (or two) upfront to obtain it.

Often, this tactic is employed to snag your business, and once you’re committed, the truth comes out, which is why mortgage APR is so important.

Is Paying for an Even Lower Mortgage Rate Right Now the Smart Move?

  • When mortgage rates are already really low (record lows at the moment)
  • It becomes somewhat less attractive to pay points at closing
  • It could be pretty expensive to get just a slightly lower rate that will save you very little
  • And your money might be better served elsewhere, especially if inflation worsens

Here’s the thing. Mortgage rates are already so low that paying mortgage discount points to go even lower isn’t all that attractive.

There’s a great chance mortgage rates will surge higher in the future as inflation finally rears its ugly head. And at that point, you’ll already have an insanely low interest rate.

On top of that, you’ll be able to invest your liquid assets in other high-yielding accounts, likely something pretty darn safe with a rate of return that will beat your low mortgage rate.

So why keep going lower and lower if you’re already paying next to nothing on your home loan?

Additionally, you won’t want to spread yourself too thin, especially if you’re buying a new house.

There are a ton of costs associated with a new home purchase, so committing all your liquidity to an even lower rate could mean that you won’t have money for relocation costs, furnishings, necessary repairs, or an upgrade.

And as mentioned, mortgage rates do have the potential to move even lower than current levels, meaning it could make sense to refinance again, favoring those who didn’t pay much to anything at closing.

Or better yet, just went with a no cost refinance to avoid paying anything to the bank or lender.

As always, do the math to see what makes sense for you. If you’re super serious about paying off your mortgage early, then buying down your rate could be the right move.

It will certainly vary based on your unique financial situation, the loan amount, the cost to buy down the rate, and how long you plan to stay with the loan/home.

Certainly take the time to compare mortgage rates with and without points, but don’t just chase a low rate below an emotional threshold, like 2%.

And determine how long it’ll take to pay back any points at closing with regular monthly mortgage payments.

Personally, locking in a 30-year fixed rate below 3% seems like a tremendous bargain.

Investing the money elsewhere, such as in stocks or bonds or wherever else, could end up being a lot more rewarding than paying prepaid interest at closing.

Perhaps more importantly, you’ll have access to that money if and when necessary for more pressing matters.

Lastly, you can always pay extra each month if and when you choose to reduce your principal balance and total interest paid. So that’s always an option regardless of the rate you wind up with.

Read more: Are mortgage points worth the cost?

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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USA Mortgage Review: #1 Mortgage Lender in Missouri?

Posted on November 17th, 2020

If you live in the USA and need a mortgage, perhaps you’ve thought about applying at “USA Mortgage.” Makes sense, right?

It just so happens that USA Mortgage is located right smack in the middle of our fine country, in St. Louis, Missouri to be exact. Well, that’s pretty darn close to the midpoint…

Anyway, geography aside, they’ve been around for about 20 years now and actually operate under the name DAS Acquisition Company, LLC, which purchased the lender when it was a distressed company.

Today, it’s the largest privately held mortgage banker in the state of Missouri and employs more than 750 licensed loan officers and operations personnel.

Technically, USA Mortgage is a full-service mortgage broker, meaning they can offer loan programs from various lender partners at wholesale prices.

USA Mortgage Fast Facts

  • Employee-owned direct-to-consumer mortgage lender located in St. Louis, MO
  • Founded in 2001 by current president and CEO Doug Schukar
  • Originally acquired as a distressed asset by DAS Acquisition Company, LLC
  • Has been #1 mortgage lender in metro St. Louis since 2012
  • Funded nearly $2.5 billion in home loans during 2019
  • More than half of total loan volume came from their home state of Missouri
  • Currently licensed to do business in 41 states and D.C.

If you live in Missouri, there’s a good chance you’ve heard of USA Mortgage. They did more than half their business in The Show-Me State last year.

They also funded hundreds of millions in mortgages in the states of Texas, Washington, and Ohio.

At the moment, they’re licensed in 41 states and the District of Columbia.

They don’t appear to be available in Delaware, Hawaii, Montana, Nevada, New York, North Dakota, South Dakota, Vermont, or Wyoming.

How to Apply for a Home Loan with USA Mortgage

  • You can apply for a home loan directly on their website in minutes without human interaction
  • Or get in contact with a loan officer at one of their many branches nationwide
  • Their digital mortgage application is powered by fintech company Ellie Mae
  • They also offer a free smartphone app that lets you complete most tasks remotely

It’s super easy to apply for a home loan with USA Mortgage. Simply surf on over to their website and click on “Apply.”

From there, you’ll need to fill in a digital mortgage application powered by Ellie Mae.

You can complete much of the process online, including the ordering of a credit report and the eSigning of disclosures.

If you are currently working with a loan officer, there is a box you can check, at which point you’ll be able to select that individual.

If not, simply click the “no” box and someone will be assigned to you automatically.

Once your mortgage application is submitted, you’ll receive status updates about loan progress and a to-do list for remaining conditions.

It’s also possible to download the free USA Mortgage smartphone app, which allows you to run calculations, scan and upload docs, contact your loan officer, and check loan status.

All in all, USA Mortgage provides a digital process from start to finish that is both convenient and easy to follow.

Loan Types Offered by USA Mortgage

  • Conventional loans backed by Fannie Mae and Freddie Mac
  • Government-backed loans: FHA, USDA, and VA loans
  • Jumbo home loans
  • Home renovation loans (203k, VA renovation, and Fannie Mae HomeStyle)
  • New construction loans
  • Bank statement programs (stated income)
  • Reverse mortgages
  • Doctor mortgages
  • Bridge loans
  • State bond programs, down payment assistance
  • Non-warrantable condos are OK

In terms of loan programs, USA Mortgage offers the whole gamut from conventional loans to government-backed loans and even bank statement programs (a newer version of a stated income mortgage).

You can get financing on a primary residence, second home, or an investment property.

It’s possible to take out a home renovation loan, such as a FHA 203k, or a new construction loan if you’ve got the lot but have yet to build the property.

Seniors who are 62 years of age and older can also take out a reverse mortgage in order to tap equity without monthly payments.

They also got a lock and shop program that allows you to lock in a mortgage rate up to 120 days in advance with no upfront lock fees.

You can choose between all the popular fixed-rate and adjustable-rate mortgage options available on the market today, such as 30-year or 15-year fixed, or a 5/1 and 7/1 ARM.

USA Mortgage Rates

USA Mortgage does not advertise its mortgage rates on its website or elsewhere to our knowledge.

In order to get pricing, you’ll need to contact a loan officer directly and/or begin the loan application process.

If on the USA Mortgage website, simply click on “branches” to find a loan officer near you, then you’ll find their contact info to inquire about pricing.

The same goes for lender fees – once you reach out to someone, ask them what fees they charge when comparing mortgage rates, such as a loan origination fee if applicable.

You should know both the interest rate and lender fees, which collectively make up the mortgage APR, an important figure to use when shopping lenders.

USA Mortgage Reviews

USA Mortgage has a pretty amazing 4.98-star rating out of 5 on Zillow based on more than 2,500 customer reviews.

Clearly that’s quite impressive given the number of reviews and the near-perfect rating.

Similarly, they have a 4.90-star rating out of 5 on SocialSurvey from over 30,000 reviews. Again, pretty close to perfection here.

They are Better Business Bureau accredited, and have been since 2010, with a current ‘A+’ rating based on complaints history.

All in all, they appear to offer stellar customer service to their clients, which would explain the almost-perfect scores they enjoy on several ratings websites.

Another plus is the wide range of loan programs offered, along with their access to wholesale mortgage rates.

USA Mortgage Pros and Cons

The Pros

  • Can apply for a home loan directly from their website without a loan officer
  • Offer a digital mortgage loan process
  • Tons of different loan programs to choose from
  • Excellent reviews from past customers
  • A+ BBB rating (and an accredited company)
  • Free mortgage calculators
  • Free smartphone app

The Cons

  • Not licensed in all states
  • Do not publicize mortgage rates or fees
  • Do not service their own loans
Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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Home Prices Are Expected to Rise Another 10% by Next November

Posted on December 21st, 2020

If you’re an existing homeowner, get excited, very excited.

A new forecast from Zillow says home prices are going to rise 10.3% from this November until November 2021.

That’s on top of the already stellar growth realized since around 2012, when home prices seemed to bottom and begin their meteoric and historic ascent.

Those fortunate to have purchased a home around that time are sitting really pretty, especially since they probably also have a fixed-rate mortgage in the 2-3% range.

This super bullish housing forecast is also good news for prospective home buyers, as it shows there’s still room for home prices to move higher, even if you didn’t get in early.

The caveat is that it has become increasingly difficult to win a bid on a quality property.

2021 Home Price Growth to Be Highest Since 2006

2021 home prices

  • Zillow economists are forecasting a 10.3% rise in home prices from November 2020 to November 2021
  • This would be the best gain for U.S. property values in nearly 15 years
  • Home price appreciation already hit records for both monthly and quarterly gains recently
  • The year 2021 is expected to start white-hot with a 3.6% gain by the end of February

Per Zillow, the typical home value, known as the Zillow Home Value Index (ZHVI) increased 1.1% from October to November to $263,351.

They refer to the ZHVI as “a smoothed, seasonally adjusted measure of the typical home value and market changes across a given region and housing type,” which generally reflects properties in the 35th to 65th percentile range (mid-market).

Anyway, the ZHVI has also risen 3% over the past three months, with both the monthly and quarterly gains the largest on record going all the way back to 1996.

This aggressive appreciation has home prices slated to chalk double-digit gains by next November, with Zillow economists forecasting a further 3.6% in the three months ending in February 2021, and 10.3% from November 2020 to November 2021.

That would push the typical home price in the United States to around $290,000, with $300,000 likely just around the corner in 2022.

For comparison sake, home values increased 7.5% since last year, perhaps slowed a bit by the COVID-19 pandemic when things came to a halt in spring.

What Will Drive Home Price Growth in 2021?

  • Continued low mortgage rates and limited housing inventory will be the theme
  • A new wave of Millennial and Gen-Z home buyers will also increase demand
  • And the hope of a COVID-19 vaccine should also fuel optimism for those sitting on the fence
  • All of these things will make the year 2021 yet another seller’s market

There are a number of things working in favor of even higher home prices in 2021, some of which are new and some of which are old.

As for the familiar stuff, it’s the continued availability of record low mortgage rates, which keep affordability in check despite ever-higher asking prices.

And 2021 mortgage rate predictions look similarly solid for those wondering if they’ll stick around.

Another ongoing issue that has pushed home prices higher has been limited housing inventory, which remains historically low with just a couple months of supply.

An emerging trend that has been known for a few years is the wave of prospective home buyers coming of age.

The typical first-time home buyer age is 34 years old, and there are about 45 million individuals who will celebrate that birthday over the next decade.

Collectively, we’ve got ultra-low mortgage rates, super limited inventory, and a growing number of potential home buyers.

It doesn’t take much effort to figure out what happens to home prices.

Sprinkle in a COVID-19 vaccine and you’ve got even more optimism, and perhaps more urgency for young folks to get serious and start families.

Ironically, the pandemic may accelerate a lot of plans as opposed to slow them down as people focus on what matters, not the trivial stuff.

Read more: 2021 Mortgage and Housing Market Predictions

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

Open post

Mortgage Rates vs. a Potential War with Iran

Last updated on February 5th, 2020

Well, it’s a new year and it certainly didn’t begin quietly. Might as well address the elephant in the room when it comes to your mortgage.

This isn’t the first time I’ve discussed the possibility of war and its impact on mortgage rates, with the last discussion centered on the Syrian conflict back in 2013.

At that time, the 30-year fixed mortgage was roughly 4.50% on average. As the drama unfolded, rates fell about 30 basis points in a matter of months before climbing back to where they started.

That’s the most recent example, though it might not be the best indicator of things to come because the adversaries are different, as is the scenario.

How an Iranian Conflict Would Affect Mortgage Rates

First off, we aren’t at war with Iran, at least not formally. Some argue that we’ve been at war with Iran for decades, via a cold war involving its proxies.

Secondly, that may not change as a result of the strike that took out their leading general, Qasem Soleimani.

While the rhetoric has certainly ratcheted up in recent days, nothing has materialized yet other than more threats.

There is a good chance Iran will take retaliatory action, but what action it takes will likely be the driving force behind any changes to mortgage rates.

Simply put, fear leads to lower interest rates as investors flee the stock market, which is traditionally riskier, to the bond market, which is known as a safe haven in times of turmoil.

When that happens, bond prices rise and their yields drop, and with them mortgage rates. At least, that’s the long-held theory.

It tends to work out that way, though it doesn’t all happen in a vacuum. It depends what else is going with the economy too.

Still, geopolitical events can take center stage and make a big impact in a short amount of time. The question is whether they have enough staying power to dent longer-term trends.

As I noted in my 2020 mortgage rate predictions post, opportunities were likely to present themselves, thanks to the ongoing Trump impeachment, trade war with China, and Brexit.

There Was Already Downward Pressure on Mortgage Rates Before Iran

Now we’ve been thrown another serious curveball in the way of a potential war with what many view as a much fiercer foe than Syria or Iraq.

As a result, mortgage rates have already dropped about an eighth of a point, with most pundits expecting even lower rates as this all unfolds.

Again, nothing has happened yet, in terms of retaliation, so we’re in a bit of a holding pattern, but rates were under pressure to stay or move lower before this materialized.

We already had a long list of catalysts with the potential to move rates lower, and now we’ve got an even bigger one.

Mortgage rates are pretty darn low as it stands, averaging around 3.75% for the 30-year fixed.

The all-time low is 3.31%, achieved back in late 2012 per Freddie Mac data. If this Iran situation gets particularly ugly, we could certainly revisit or even surpass those lows.

But it really depends what transpires. When we invaded Iraq in early 2003, mortgage rates bounced all over the place.

They were as low as 5.23% and as high as 6.26% in just a matter of months.

I wouldn’t be surprised if we see similar volatility in 2020, which again, will present opportunities to those in a position to pick and choose their mortgage closing date.

Longer term, a real (hot) war could actually lead to inflation and higher interest rates, though that outcome is hopefully a lot less likely.

In summary, the fear of what is to come will probably drive mortgage rates lower in the short term. But once reality sets in, rates may return to prior levels.

Iran aside, there’s still plenty of other stuff that has the ability to make a big splash in 2020, so be sure to keep a close eye on the news if you’re in the market to get a new mortgage.

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

Open post

When to Refinance a Home Mortgage: Now, Later, or Never?

Posted on October 28th, 2020

Mortgage Q&A: “When to refinance a home mortgage.”

With mortgage rates at or near record lows, you may be wondering if now is a good time to refinance. Heck, your neighbors just did and now they’re bragging about their shiny new low rate.

The popular 30-year fixed-rate mortgage slipped to 2.80% last week, per Freddie Mac, well below the 3.75% average seen a year ago, and much better than the 4-6% range seen years earlier.

Historically, mortgage interest rates have never been lower, making a mortgage refinance a veritable no-brainer for many homeowners out there.

In other words, there’s a good chance you won’t be holding off from refinancing because interest rates are too high (unless you just recently refinanced).

But even if you did, there’s a possibility it could make sense to refinance a second time.

Should I Refinance My Mortgage Now?

should i refinance

  • Consider your current interest rate relative to today’s available rates
  • Along with required closing costs and how long it will take to break even
  • Think about how long you plan to keep the mortgage/property
  • And any other factors like removing mortgage insurance or shortening your loan term

Well, the answer to that question depends on a number of factors that will be unique to you and only you.

First, what is the interest rate on your existing mortgage(s)? Is it higher or lower than current mortgage rates?

If it’s higher, how much higher? If it’s lower, is your current loan adjustable? Or do you want to refinance for another reason, perhaps to tap equity?

Once you’ve got those basic questions answered, let’s talk about the new loan. What will the rate and closing costs be on the new mortgage?

Have you started shopping rates yet? Do you even know if you qualify?

How long do you plan to keep this new mortgage? What about the house? Are you sticking around for a while?

Assuming you’re still here, it might be a good time to take a look at a common scenario to illustrate the potential savings of a refinance.

Let’s look at a quick home refinance example:

Loan amount: $200,000
Current mortgage rate: 4.25% 30-year fixed
Refinance rate: 2.75% 30-year fixed
Closing costs: $2,500

The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $984, while the refinanced rate of 2.75% would carry a monthly P&I payment of about $816.

That equates to savings of roughly $168 a month if you were to refinance. Not bad. But we aren’t done yet.

Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 14 months of payments, give or take, before you broke even and started saving yourself some money.

Yes, you need to consider the cost of the refinance too…

So if you happened to refinance again or sold your home during that window, refinancing wouldn’t make a lot of sense.

In fact, you’d actually lose money and any time you spent refinancing your mortgage would be wasted as well.

But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial. Just imagine saving $168 for 200 months or longer.

This “break-even” point is key to making your decision, at least financially speaking.

You also need to consider whether it makes sense to buy down your interest rate by paying points, which will increase the time to this break-even point.

For example, those who paid upfront points on their refinance a year ago might be kicking themselves, knowing they’ll benefit from a subsequent refinance thanks to today’s even lower rates.

So sit down and determine your future housing plans before you decide to refinance to determine if it’s the right move.

If you don’t know what your plan is for at least the next few years, you may want to hold off until you do.

[The refinance rule of thumb.]

How Long Have You Had Your Existing Mortgage?

when to refinance

  • You also have to consider how long you’ve had your current home loan
  • This can play a big role in determining whether a refinance makes sense
  • Take note of how much it has been paid down since that time
  • And how much of each payment is going toward interest

Here’s another consideration. If you’ve already paid down your mortgage substantially, it might not make sense to refinance, assuming you want to pay the thing off.

Even if rates are super low, as there’s a good chance you’ll pay more interest overall if you “reset the clock” and start your full loan term over again. But this isn’t always the case.

To determine if a refinance is still the right move, get your hands on an amortization calculator.

That way you can see what you’ll pay in interest if you keep your mortgage intact versus what you’ll pay in interest with the new mortgage, factoring in what you’ve already paid on the old mortgage.

You can also use my refinance calculator to plug in all the pertinent numbers, including what we discussed above, to get a quick answer.

If your calculations reveal that you’ll pay more interest over the entire term of the refinance mortgage, there’s an easy strategy to reduce both interest paid and the term of the new mortgage.

Simply make the same monthly mortgage payment you were making before the refinance, with the excess going toward principal each month.

This will shorten the loan term and could save you a lot of money. I explain this method on my mortgage payoff tricks page, which you can read about in more detail.

If you can afford it, you may also want to look into shortening the loan term by going with a 15-year fixed mortgage.

For example, if you’re already 10 years into your 30-year mortgage, reducing the term to a 15-year fixed will ensure you don’t extend the aggregate term.

And with mortgage rates so low, you may be able to retain your low monthly mortgage payment and pay the mortgage off even earlier than expected.

Also, 15-year mortgage rates are lower than those on the 30-year fixed.

Other Mortgage Refinance Considerations…

  • Even if interest rates are comparable to what you already have
  • It could make sense to refinance out of an ARM or an interest-only loan
  • The same is true if you want to get rid of mortgage insurance
  • Or if you’d like to consolidate two mortgage loans into one

If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make a lot of sense.

Even if the monthly savings aren’t tremendous, getting out of a risky product and into a stable one could pay dividends for years to come.

Or if you have two loans, consolidating the total balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings as well.

You’ll have one less mortgage to worry about and ideally a lower combined monthly payment.

The same might be true if you have mortgage insurance and want to get rid of it. Many homeowners will execute an FHA-to-conventional refinance to drop MIP and reduce monthly payments once they’ve got some equity.

Additionally, you might be able to get your hands on a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).

In this case, if the rate is lower than your existing rate, you start saving money immediately.

As mentioned earlier, a cash-out refinance could also contribute to your decision to refinance if you are in need of money and have the necessary equity.

Heck, with mortgage interest rates this low you could even make the argument to tap equity and invest it elsewhere for a better return.

Again, you’ll want to aim for a lower rate and cash back, but there could be a scenario where borrowing from your home is the best deal, even if you don’t save much or anything mortgage payment-wise.

This is really just the tip of the iceberg. There are countless reasons to refinance your home loan, including many seemingly unconventional ones you may have never thought of.

Whatever the reason, be sure to put in the time (and the math) to ensure it’s a good decision for you and not just the bank or a loan officer pushing you to do it!

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

Open post

It’s Taking a Really Long Time to Get a Mortgage Right Now

Posted on November 23rd, 2020

Similar to the increased waiting times to get a COVID-19 test these days, it’s taking an extended amount of time to get a mortgage to the finish line.

The reason is simply unprecedented demand, just like those COVID-19 tests. The more people that need one, the longer the wait, period.

This is the downside to record low mortgage rates, which while undoubtedly great for homeowners, mean mortgage lenders are absolutely slammed.

Average Time to Close Now 54 Days

oct 2020 originations

  • Home loans are taking a lot longer to close due to unprecedented demand
  • It now takes 54 days for a home loan to fund, up from 44 days a year ago
  • While purchases are taking a similar amount of time to close, refis have slowed by nearly three weeks
  • Expect your mortgage refinance to take almost two months from start to finish

While you might see advertisements telling you it’s possible to get approved for a mortgage in just minutes, that’s very different than actually closing a home loan.

Sure, you can get the ball rolling right away, maybe get a fairly solid mortgage pre-approval that has been run through an automated underwriting system the same day.

But in terms of your loan actually making it to the funding table and getting recorded, the timeline might be closer to two months than 10 minutes.

The latest Origination Insight Report from Ellie Mae revealed the average time to close all home loans increased to 54 days in October, up from 51 days in September.

Broken down by transaction type, it took 48 days to close a purchase loan in October, up from 47 days in September, and 57 days to close a refinance loan, up from 54 days in September.

For perspective, it took an average of 42 days to get a home loan closed six months ago, and 44 days a year ago.

Back in April, a refinance took just 39 days, while a home purchase took 46 days. So while purchase loan closing times have held fairly steady, refis are taking nearly three weeks longer on average.

In other words, be patient and expect it to take a while, regardless of all the cool new technology you’ve seen and heard about.

Yes, it’s easier to get a mortgage these days thanks to digital mortgage applications, including those powered by Ellie Mae themselves, but that doesn’t necessarily mean the process goes much faster.

It just means you’ll get tasks done quickly, then spend a lot of time twiddling your thumbs while home appraisals get scheduled and your loan makes it through underwriting and on to the funding department.

Mortgage Rates Fall Below 3% for First Time

  • The average mortgage rate on a closed loan fell below 3% for the first time ever
  • The 30-year note was 2.99% in October, down from 3% a month earlier and 3.94% a year ago
  • VA loans had an average rate of 2.75%, while conventional and FHA loans averaged 3.01%
  • Expect this number to dip even lower as rates have fallen over the past couple months

Ellie Mae also noted that mortgage rates fell below three percent for the first time since the company began tracking such data back in 2011.

Again, this explains why those wait times to get a mortgage have increased so much.

The report revealed that the average 30-year fixed note rate was 2.99% in October, down from 3% in September and 3.94% a year earlier.

By loan type, it was 2.75% for a VA loan, and 3.01% for both a conventional loan and FHA loan.

Combined, that was enough to push the average interest rate on a closed loan below 3%.

My expectation is this number will continue to fall as mortgage rates have only moved lower in recent months, and the data lags.

In summary, patience is a virtue right now when it comes to just about anything, including home loans.

And remember, aside from it being difficult (by human nature) to wait, mortgage lenders also tend to keep rates elevated when demand is super high.

So it could actually pay to wait to apply for a refinance until things calm down – the only dilemma there is if rates happen to rise during that time.

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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