In the last year and a half we have had a tsunami of questions and interest from our past clients and friends regarding how to obtain a mortgage rate lower than George Washington could have received when financing Mount Vernon.
That’s right! Rates are the lowest in the history of the United States and will soon rise!
“It’s the best time in our generation to buy,” says Mark Zandi, chief economist at Moody’s.
“It may be the best time in any generation. Mortgage rates are so low and with home prices down and lots of inventory, you couldn’t pick a better time to buy or re-finance!” Quote from CNBC Article: Mortgage Rates at New Lows Thanks to Europe’s Debt Crisis (click to see article)
30 year fixed rates are averaging in the mid 4% range! See www.freddiemac.com for current rate average.
You’ve got questions, we have answers!
Here are some answers to the most common questions we receive.
Q: Can I refinance if I have less than 20% equity in my home?
A: That depends. If your home loan is owned by Fannie Mae or Freddie Mac, you may be eligible for the “Home Affordable Refinance Program.” (IMPORTANT! Who owns your loan is not necessarily who you make your payments to!)
Here is how you look that up:
Click to go to www.makinghomeaffordable.gov
If it is with Fannie or Freddie, we can refinance your loan to a much lower fixed rate if you are current on your payments and if you do not currently have mortgage insurance associated with your payment. We can lend up to 125% of your current appraised value (Not available for cash out or increasing your 1st trust loan amount to pay off 2nd trusts or home equity line of credit). If you have an FHA or VA (Veterans Affairs) loan call immediately because we can probably help you out regardless of the value of the home or loan balance.
Q: How do I know the value of my home?
A: That is determined by the most recent sales of similar homes closest to you. A good way to get a preliminary idea is to visit www.zillow.com and type in your property address. Then take your current loan amount divided by your current value to determine if you are 1. Lower than 80% loan to value (anyone qualifies if so), 2. Higher than 80% loan to value up to 125% loan to value, but your loan is owned by Fannie Mae or Freddie Mac (see above link), you are good to go. Call me immediately after you get done picking up the money you are currently throwing out the window!
Due to the drop in home values in most areas of Northern VA, some people owe more than 125% of their home value. Others owe over 80% of their home value but their loan is not owned by Fannie Mae or Freddie Mac. Many people also have 2nd trusts or a home equity line of credit in addition to their 1st mortgage. Right now given the current tight lending environment, there is not anything that can be done except dramatically pay down the mortgage to either 125% or less if owned by Fannie or Freddie, or 80% or less if not owned by Fannie Mae or Freddie Mac. We do have some clients who are deciding the time is right to lower the principle balance on their home loan to take advantage of this historic opportunity. For those that feel stuck, we are continuing to watch lending guidelines and laws on a daily basis. If anything should change that will benefit you and your family, you will hear from us right away. We are in the business of making loans to the local community and don’t get paid unless we say yes. Pass this along to your friends and family that are in either boat. We will take care of them now, or add them to our “important people to call list” should anything changes with guidelines or laws that will help them out.
Call or write today to discuss this once in a lifetime opportunity!
This certainly applies to our real estate market as well.
These days banks are not the only ones being cautious. It looks like consumers who saw their real estate values drop, as well as their retirement accounts in the same year are using some extra caution when borrowing mortgage money. Freddie Mac reports in their 1st Quarter 2010 survey, that 95% of people refinancing mortgages this year are going into fixed rate loans. A similar percentage of purchasers are using fixed rate products as well over an adjustable rate product when buying a home. This is illogical as the average person only has the loan for seven years. This is especially curious when rates on Adjustable Rate Mortgages have hit all time lows and the spreads between the 30 year fixed and a 5 year ARM is an astounding 1% plus. As I write this, you can easily obtain a 5/1 ARM at 3.5%! On a $300,000 loan that is approximately $240 per month in interest savings or $13,500 over 5 years! That is compared to a 30 year at 4.875%!
It looks like homeowners are choosing payment certainty over payment savings. The even stranger part of this is that people generally use ARM’s for a few reasons. 1. Payment savings. 2. Will not need to borrow the money for longer than the fixed period. 3. Or maybe they are comfortable with a payment that can change in the future at least somewhat predictably which most ARM’s offer. None of the reasons why people would use an ARM has changed in the last few years. Yet ARM rates vs. Fixed rates spreads are at all time highs and less consumers are using the product. The only conclusion that can be drawn is that there has been a fundamental shift in the way consumers think about financing their homes. I understand why consumers are doing this; it just isn’t the most logical occurrence. Make sure you are consulting with a mortgage professional that can help you integrate your mortgage into your entire financial planning picture. A fixed rate may be the best tool for you. But you also may notice that if used wisely, the ARM product can be a great financial planning and savings tool for you given certain circumstances.
*It is important to note that people are not being foreclosed on because the interest rate on their ARM rose. Those rates are lower than when the borrower started hence lower payment. The loans that changed higher in payment were short term interest only or negative amortization loans where the borrower wasn’t paying any principle at first then principle became required which upped their payment. Big fundamental difference in product!