Posts Tagged: ‘Refinance’

Good Economy is Bad For Mortgage Rates

January 30, 2018 Posted by Andre Hemmersbach

Higher Mortgage Rates In Our Future?

Higher mortgage rates? I thought the economy was doing well? It seems almost backwards but a good economy is bad for interest rates. As the economy picks up steam,

Mortgage money is going to cost more


investors start to worry about inflation. How much will inflation diminish my investment returns? The answer is simple for them. They only buy investments that bring a higher return adjusted for a higher anticipated inflation. Mortgages with lower rates do not get purchased, so rates move up. Simple supply and demand. So while the good news is your retirement account is growing with every Dow increase, the bad news is that any credit you may have or acquire, like a car or home loan, will be at a higher rate.

What does that mean in dollars and cents?

A 0.25% rate rise on a $300,000 mortgage equates to a monthly payment increase of about $44.00 per month and while that may not seem like a lot, these little increases can add up. According to Samantha Sharf at Forbes, in an article for January 3, 2018, mortgage rates are anticipated to top out around 4.5% by the end of 2018.

Please call me for a free consultation. We can discuss if you are in the correct mortgage product or need help restructuring high credit card or soon to be higher Equity Line of Credit debt.


5 ways to lose money on a refinance

March 8, 2017 Posted by Andre Hemmersbach

Refinance to save money

Refinance to save money

Your home is likely your largest single investment. When refinancing your mortgage, treat it like you would any investment by analyzing how the financial costs and returns meet your goals. This requires a clear picture of the financial goals of this investment. (See a copy my refinance analysis) Do you have a constraint on the monthly housing budget? Are you seeking the lowest overall cost of ownership? How long will you be in the loan? Without answering these and other questions, you can naively lose money on your home refinance.

Here are some of the common traps:

Fall for the monthly savings seduction: Many mortgage brokers or loan officers will push a loan that lowers the monthly mortgage payment. A lower payment might be your goal, but it could come with an overall increased cost. Your total refinance cost will be based on your outstanding loan amount, interest rate, loan term, and cost of executing the loan. Extending the term of the loan will have a dramatic effect on the monthly payment. However, borrowing any amount for a longer term will increase your total interest payments (all else being equal). You can even achieve a lower monthly payment with a longer term and a higher interest rate. Don’t be seduced by a lower monthly payment if it is not required by your financial goals.

Accept the “no cost loan” lie: Loan officers may also promote a “no cost loan”. Be assured that there is no free lunch.  A refinance takes effort and someone needs to get paid for the work. That cost is always hidden in a higher interest rates on a “No Cost Loan”. Each loan institution has different rates, different costs and different ways of recognizing those costs. It is actually possible to pay some loan costs, receive a lower rate, and achieve a lower overall cost of the loan.

Don’t look at the total cost of the loan: Your mortgage refinance is an investment decision. You should compare the before and after financial results before making this important decision. A new loan will mean new fees (title, doc fees, inspection, etc.) and a new cost of execution. It will also “reset the clock” on the loan. Fixed payment loans are constructed such that the initial payments are mostly interest and the final payments are mostly principal. The effective interest rate of your existing loan could be well below what you receive from a new loan. Refinancing may not make economic sense. You can only make the determination by comparing the total future costs of the existing loan to the total costs of the new loan. Your loan officer should be able to show you the total cost of both investments before you make the decision, not as you sign the papers.

Ignore the length of time you will have the loan: You may make a loan for 10, 20 or even 30 years knowing full well that you will only be in the house for fewer years. Your investment decision should be based on your financial goals and the total cost during the true expected duration of the loan. Your loan officer should be able to show you a comparison of the total cost of the loan only for the expected duration. Different terms lengths will affect both the interest paid and the accumulation of principal. These factors could be more or less advantageous depending on your financial goals.

Forget to examine ALL the options: A bank is limited to its own offerings. A mortgage broker can match your financial goals and your credit worthiness to multiple offerings from scores of banks and other institutions. A number-crunching mortgage broker can help you calculate the returns of these offerings. (See HERE for an example of this analysis.)  An experienced mortgage broker can offer even more options to meet your need.  If the monthly budget is not a factor, perhaps it makes sense to increase the monthly payment. This could include making extra payments on the existing loan. A financially astute mortgage broker can interpret the analysis of each of these scenarios for “regular people” and help show which option best meets the individual’s financial goals.

I am an experienced, number-crunching, financially astute mortgage broker. Contact me at 310 713-3100 for a free consultation and to find out if a refinance scenario is right for you.




Removing Mortgage Insurance

July 29, 2014 Posted by Andre Hemmersbach

If you secured a home loan with less than a 20 percent down payment, chances are your lender required you to purchase mortgage insurance (MI) to cover its exposure in case you default.

Once your equity position in the home reaches 20 percent however, you can in some cases, petition the lender to remove the MI. If you have an FHA-insured loan, premium payments to the government are required for a minimum of 5 years and the loan balance must be lower than 78% based on the original sales price of the property. FHA loans after June of 2013 are required to have MI for the life of the loan barring some limited exceptions.

Know your rights
By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel the MI.

Most home buyers ask that MI be canceled once they pay their loan balance down to 80 percent of the home’s original appraised value. When the balance drop to 78 percent, their mortgage servicer is required to cancel mortgage insurance for them. Mortgage servicers also must give borrowers an annual statement that shows who to call for information about canceling MI.

The law does allow lenders to require MI of a high-risk borrower until the balance shrinks to 50 percent of the home’s value. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop the MI. Lenders may require a higher equity percentage if the property has been converted to rental use.

With equity of 20 percent or greater, you have a good case to rid yourself of mortgage insurance. If you can’t persuade your lender to drop the MI, consider refinancing. If your home value has increased enough, the new lender won’t require MI. Make sure, however, that your refinance costs don’t exceed the money you save by eliminating MI.
Here are steps you can take to get out from under mortgage insurance even sooner or strengthen your negotiating position:
•Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding if you meet the 20 percent equity threshold. The cost of an appraisal generally runs from $300 to $500.
•Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
•Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.

I would be happy to help review your options.


Real Estate Time Bomb

January 30, 2014 Posted by Andre Hemmersbach

If you regularly read financial periodicals, you will come across articles from financial experts on doomsday scenarios. Many times they are motivational pieces focused on selling you something to “protect” you against the awaiting catastrophe; other times it is a true warning by an expert that sees something very disturbing. The Dotcom Bust, the Asian Currency Crisis and even our 2008 Real Estate Bubble all had warning signs and experts who correctly predicted the financial disaster.  Today’s popular pending Armageddons are the Student Loan Bubble, the T-Bill Bubble and in the real estate sector a warning about Equity Lines of Credit (ELOC).

If you were a homeowner in 2004 – 2008 you were receiving multiple free offers for ELOC with low payments and teaser rates. Many homeowners took advantage of those freebies and started using their home equity like credit cards to buy everything from automobiles to vacations. In hindsight these mortgage instruments have been pretty good deals. Historic low-interest rates over the last 5 years and the tax benefits associated with the ELOCs have made this a very cheap method to finance any purchase.

Unfortunately, most homeowners do not understand the mechanics of their ELOC. Many times the promissory note they signed ten years ago was never read, explained or maybe just forgotten.  A quick explanation of how an ELOC works will help you understand the time bomb lurking in the shadows.

98% of all ELOC have a 10 year draw period. During this time you can use your line like a credit card to buy goods and services. After the 10th year starts the 20 year repayment period begins (a few ELOCs have 15 year repayment periods).  All ELOC have an index and most are based on the prime rate (currently 3.25%). Lenders use an index to make sure that they receive an interest rate that is commensurate with current market conditions. To the index rate the lender adds a margin (the Bank’s profit) usually 0.0% to as high as 3.0% or more. Check your Promissory Note or with your servicer to find your margin. Every month the lender adds the index rate to the margin and divides by 12. This is the monthly rate you are charged on your outstanding balance. These loans do not contain any sort of periodic cap to protect you from quick interest rate increases month over month. A lifetime interest rate cap of 18% is standard.

So where is the potential powder keg? As the 10 year draw and interest only periods are coming to close, borrowers will get notices of their mortgage payments increasing as their ELOC change to  fully amortizing loans. The amount could be startling for some homeowners! For example, an $85,000 balance, which is pretty typical of what I see on my customer’s loan applications, at a current rate of 4.25% (3.25% Prime Rate plus a 1.0% margin) has an interest only payment of $301.04 this would go to $526.35 on a 20 year repayment. But that’s not the whole story! Understand that we are at historically low rates. In the past the Prime Rate has been above 8% seven times since 1970 and at 8.25% as recently as September of 2007. So let me run those numbers on a balance of $85,000: Current payment interest only $301.04, new payment with rates at 9.25% (Prime Rate 8.25% plus a 1.0% margin) would be $778.49 for a 20 year repayment. If your ELOC has a 15 repayment your new payment would be $874.82. That is a payment increase of $573.77 or 191%

Please do not misconstrue that I am predicting an 8.25% prime rate anytime soon, but recognize that homeowners who have ELOC s with larger balances need to be aware of potential payment increases and how it could affect them.

If I can help you figure out how your ELOC will adjust and the steps you can take to minimize the impact please call me at my office. 310 540 1330.


Little Known Mortgage Underwriting Guideline Exception

August 1, 2013 Posted by Andre Hemmersbach

Over the last several years the news about lending and lending guidelines has for the most part been pretty negative so when there is something positive to highlight it makes my job a bit easier.

One of Fannie Mae’s (FNMA, the government institution that buys almost all the fixed rate mortgages made today) little known rules that could help certain individuals is how they look at borrowers who are purchasing, refinancing or doing a cash-out refinance for and elderly parent or disabled child.

If the elderly parent, or in the case of a disabled adult child, is unable to work or does not have sufficient income to qualify for a mortgage on his or her own FNMA will allow the borrower of the elderly parent or disabled child to purchase or refinance the home as the owner occupant at the owner occupant rates, loan to values and guidlelines even if they are not going to occupy the property.

There would be several additional documentation requirements but as a whole it pretty simple. More astonishing than the fact that FNMA allows this as an exception is that not all lenders follow the rule or even know about it.

If i can be a resource to you on any real estate matters please call me.