An FHA-to-Conventional Refinance May Allow You to Ditch MIP

While refinance applications seem to be taking a backseat to purchase applications, there are still some good reasons to refinance your mortgage, even if rates aren’t currently at their best.

First off, let me preface this with the fact that mortgage rates are still spectacular. Yes, the 30-year fixed used to be in the mid-3% range, but a rate of around 4% was relatively unheard of until recently (and is still available today).

Unfortunately, the recent increase in rates has dented refinance applications as the pool of eligible borrowers begins to dry up.

Today, the Mortgage Bankers Association noted that refis slid another 4% in the latest week, pushing the refi share of total mortgage activity down to just 42.6% from 44% a week earlier.

Most industry participants saw this coming, which explains the recent trend of mortgage companies cozying up with real estate agents. Hello Motto Mortgage and Redfin Mortgage, to name just a couple.

But there are still opportunities for both homeowners and mortgage lenders to pick up the refi slack.

Refinancing Out of FHA and Into Conventional


One such opportunity is refinancing an FHA loan into a conventional loan (such as a Fannie Mae or Freddie Mac loan), the main benefit being the removal of the mortgage insurance that must be paid on the former.

Thanks (or not thanks) to the FHA’s stringent mortgage insurance rules, the annual mortgage insurance premium (MIP) must be paid monthly regardless of whether the loan balance falls below 80% loan-to-value (LTV) unless the loan is a 15-year fixed or came with a 10%+ down payment. Or if it’s an older FHA loan.

Most FHA loans are 30-year fixed mortgages with minimal down payments, meaning MIP often stays in-force for all 30 years unless you refinance out of the FHA.

This adds to an otherwise low monthly mortgage payment, making even a great mortgage rate a little less attractive.

Many folks took out FHA loans several years ago to take advantage of the low 3.5% down payment requirement, and because home prices have increased so much since then, some of these borrowers may have the necessary equity to refinance into a conventional loan at 80% LTV or less.

Doing so will allow them to ditch the MIP and avoid PMI on the new conventional loan, which could equate to substantial savings.


Let’s take a look at an example:

Sales price: $300,000
Down payment: $10,500 (3.5%)
Loan amount: $294,566.25 (includes upfront MIP of $5,066.25)
FHA monthly MIP: $205.06

Instead of subjecting yourself to ~$200 in monthly mortgage insurance premiums, you might be able to refinance to a conventional loan at 80% LTV or less and rid yourself of that burden.

Tip: Note that the Upfront Mortgage Insurance Premium (UFMIP) is non-refundable if you refinance out of the FHA to a conventional loan. It may be refundable if you refinance to a new FHA-insured mortgage.

Two Things Need to Happen for the FHA-to-Conventional Refinance to Make Sense

Not just anyone can take advantage of this type of refinance. Only those who have gained enough equity and who can obtain a comparable (or better) mortgage rate will win here.

Using our example, the home must now be worth X amount to get that LTV down to where it needs to be. I say X because it depends how long you’ve had the loan.

A combination of home price increases and the natural amortization of the loan will tell you what the value needs to be.

The loan balance above would drop to $277,000 in just three years, requiring a house value of $346,250 to get the job done.

Fortunately, home prices have surged in the past several years, so for many lucky borrowers the appreciation alone can push a relatively young loan to the magical 80% LTV mark upon refinancing.

Assuming you’re good to go there, you’ll need to consider the mortgage rate. That is, your former mortgage rate and the refinance mortgage rate.

If you previously had a rate of 3.75% on a 30-year fixed, and the best available rate today is 4.125%, you have to take into account that .375% bump in rate.

The good news is that it shouldn’t affect the mortgage payment by too much.

The old principal and mortgage payment was $1,322.73 plus $205.06 with MIP, making it $1,527.80 out the door (don’t forget taxes and insurance too!).

If the rate were 4.125% instead, the monthly P&I payment would be (based on a slightly lower outstanding balance of $277,000) $1,342.48.

Yes, it’s a bit higher than the old P&I payment, by around $20, but you no longer have to pay the $200 in MIP. That’s a significant amount of monthly savings.

In reality, you might actually do even better if you started out with a higher mortgage rate thanks to a low credit score and/or high LTV, and have since improved upon those things.

250,000 Homeowners Expected to Refinance from FHA to Conventional This Year

CoreLogic recently noted that thanks to the FHA policy change of requiring mortgage insurance for life, FHA to conventional refinances have soared.

Last year, such refis accounted for about 8% of all refinance transactions, with about 20,000 loans originated per month.

In 2010, that rate was about 4,000 FHA-to-conventional refis per month, or just one percent of refinance transactions.

Since 2013, when the FHA’s mortgage insurance policy changed, about 2.9 million borrowers have taken out FHA loans. CoreLogic expects another 250,000 of these borrowers to go conventional in 2017, thanks in part to another 5% rise in home prices.

If you’re currently in an FHA loan, it might be time to consider a conventional loan instead if you stand to save a decent chunk of money each month.

Just be sure to take note of how long your FHA mortgage insurance will actually be in-force. Some borrowers with older FHA loans, 15-year fixed mortgages, or those who originally made large down payments might have more favorable insurance requirements.

(photo: Phil Leitch)

source: thetruthaboutmortgage.com

A boost for the remortgage market

So June the 23rd delivered a momentous decision that few were expecting. The shock has not been the result so much as to how people have behaved subsequently: the Prime Minister has resigned, the labour shadow cabinet has thrown their toys out of the pram regarding the leadership of their party, while Nicola Sturgeon opportunistically wants to fragment the kingdom still further with, ironically, a vote for independence that will make the Scots less independent.

Ultimately however, democracy has taken its course and a vote has been taken, now it is time for everyone to pull together, regardless of political persuasion, or which way you voted.  It is time to look to the future of our great country and make it a success. This will only happen by everyone working together to make it so.  The more there is division the more that people who want to see the UK fail will start to gain a foothold.

So to the mortgage market. Mortgage rates were dropping for many weeks before the referendum and we had already seen the launch of the lowest ever fixed rate. Lenders have continued to lower interest rates, with a sub 1% rate being launched by HSBC before the referendum, and it looks like rates will not be going up any time soon.

In this respect it seems like what the politicians are forecasting and what is actually happening on the ground is pulling in separate directions and predictions are often little indication of what will actually happen.

In fact it is almost impossible to judge, partly because even the people meant to be making many of the pivotal decisions still do not know what decisions to make themselves. At the time of writing Mark Carney is unsure whether he will need to lower rates to boost spending or whether he will need to raise them as we may have an inflationary situation because the cost of oil will rise, as will other things dependent on the sterling/dollar exchange rate.

While swap rates have been falling for some time, giving banks access to cheap three and six month money, there is a chance that funds further down the line may be more expensive if UK banks find it harder to access money from the money markets. This would raise the cost of mortgages regardless of what the Bank of England does. However, there is certainly no shortage of money to be lent at the moment which is contributing to the incredibly low rates.

Either way this is arguably good news for the mortgage market right now as we may well see the number of remortgages rise. On the one hand we have the lowest mortgage rates we have ever had, on the other there is a prospect that they may rise in three to six months. Both of which mean if ever there has been a time for mortgage brokers to get in touch with their clients, now is it.

source: mortgageintroducer.com

Do You Really Need Owners’ Title Insurance?

Many home buyers are surprised to learn that the title insurance they are required to buy during the closing process doesn’t protect them if there’s a problem with their title. Even though the home buyer pays for the policy, it only protects the lender.

So it’s no surprise that after they have saved for their down payments and put a deposit in escrow, the last thing most buyers probably want to do is spend even more money on title insurance than they had planned.

Before making a decision, however, it’s a good idea to learn more about the risks involved should you have a challenge to your title.

What does a title challenge look like?
Title searches can uncover problems that consumers never see. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. Searches reveal liens that have not be cleared, disputed easements and rights-of-way, life estates, conveyance of air and subsurface rights, and future interests that the home seller may not even have known about.

Unknown to the lender or buyer, title companies find and fix problems with titles in 25 percent of their searches. However they are not perfect, which is why lenders insist on coverage.

Even when a property is resold quickly, or refinanced within a short period of time from the original purchase or most recent refinance, a new title search and title policy are needed because the owner could have taken actions that had an impact on his claim to the title, such as taking out a second mortgage or incurred a lien from unpaid taxes.

Is coverage worth it?
If there’s a problem with your title and you don’t have coverage, you could easily lose your home. It happens infrequently, but often enough to make the small cost of owners’ coverage worth it to many home buyers.

According to the American Land Title Association, in 2014 a Missouri family purchased a home for more than $400,000. The title search missed a lien on the property. When the lien was discovered, the title insurer paid off the lender, but since the family wasn’t covered, they lost their home.

In another recent case, a homebuilder sold and financed a home to a first-time buyer, but because the builder financed the sale and didn’t require title insurance, neither the lender nor the homeowner had title insurance. When there was a lien on the property, the family lost the home and the builder went under.

The bottom line?

Whether or not you get owners’ title insurance is your choice, but it can cost much less than lender’s insurance. When you select a title insurer for the lender’s policy, ask for the “simultaneous issue rate.” Usually title companies will write you an owners’ rate at the same time they prepare the lenders rate but tor considerably less. You can save as much as 50 percent of the cost of the second policy, if you shop around.

source: totalmortgage.com

Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

Understanding Settlement Statements: How to Decipher Yours Before Closing on Your Home

One of the most important documents you’ll receive as you draw closer to closing on your new home is called Good Faith Estimate, which is a precursor to the settlement statement that defines the financing of your home closing. This detailed piece of paperwork may seem like it needs its own decoder ring to understand, but you can use this simple guide to understand your Good Faith Estimate.

 Property Information

When you receive your Good Faith Estimate, double-check that the information about your new home is accurate, including the address, purchaser name and date. The date is especially important because estimates of the closing costs like interest and taxes can vary based on this date.

The other important date to review is the deadline to lock in the offered interest rate. Your lender may require you to pay a fee to lock in that interest rate and may also requires you to close the loan by another deadline to guarantee that rate.

Costs and More Costs

While applying for your mortgage, you probably discussed potential monthly costs with your broker. Under the “Summary of Your Loan” area, actual interest and recurring costs are further defined. Verify whether your interest rate can change over time or if you will face any penalty for making early payments. In this area, you’ll also learn if your mortgage lender will require you to pay a portion of your homeowners insurance and property tax every month with your housing payment — called escrow charges — or if you can independently pay these charges.

Origination Charges

Your mortgage company may charge you fees for originating a loan on your behalf, including fees to lock in rates or process your paperwork. Some of those fees may be collected up front, while others are included in your closing costs. You may also agree to pay additional charges called “points” to lower your interest rate. Your mortgage company may provide several rates: in general, lower rates cost more to lock in at closing, while higher rates reduce your closing costs.

Settlement Charges

Settlement charges often include

    Surveyor fees
    Legal recording fees
    Title fees
    Prepaid insurance and taxes
    Appraisal fees
    Credit report fees
    Courier fees
    Attorney fees

An estimate of these fees will be included under your settlement charges. As a buyer, you can request that the seller pay certain fees entirely or that they pay a percentage of the total settlement cost as part of your price negotiation.

Homework

On the final page of your Good Faith Estimate, you’ll have room to do more homework. Although you may have talked to only one lender, you can still investigate other interest rates or options. Take the time to go through these numbers. Refinancing can be expensive and time consuming, so locking in the loan with the best available rate and lost costs can save time and money in the long run.

Now that you better understand your Good Faith Estimate, you will be well prepared to review your HUD Settlement Statement at closing and know what fees and costs you will bear.

source: totalmortgage.com

How to Save Money on Your Mortgage Even If You Can’t Refinance

One of the simplest ways to save money on your mortgage is by lowering your interest rate.

This is generally accomplished via a rate and term refinance, where the loan amount stays the same, but the interest rate and loan term are changed.

For example, if you’re currently stuck with a 6% interest rate on your 30-year fixed mortgage, refinancing to a rate closer to 4% will save you some dough each month.

Not only will it reduce your monthly payment, making life more affordable, but it will also result in less interest paid throughout the life of the loan.


Sounds like a win-win, but what if you’re unable to refinance for whatever reason?  Ben Bernanke, I’m looking in your direction…


 You Can Still Save Money


While you won’t be able to lower your monthly payment without refinancing, you can still save a ton of money on your mortgage another way.

Simply making extra payments, biweekly payments, rounding up payments, or implementing a variety of other methods, you can reduce the total interest you’ll pay on your mortgage without a refinance.

Sure, a refinance combined with extra monthly payments would save you even more money, but if you don’t have that option, this is the next best thing.

Imagine you took out a $100,000 mortgage five years ago and got a rate of 6% on a 30-year fixed.

You inquire about a refinance but after some shopping around determine you’re ineligible because your credit score isn’t up to snuff.

Instead of simply giving up, you can make larger payments each month and shave years off your mortgage (and pay a lot less interest).

If you paid an extra $100 monthly after making the standard payment for the first five years of the loan, you’d still save more than $26,000 and shorten the term to just over 23 years.

If you paid an extra $200 per month (after five years), you’d save more than $40,000 in interest and turn your 30-year mortgage into a 20-year loan.

The beauty of the non-refinance route is that you also don’t reset the clock on your mortgage. In other words, you don’t extend the term with a fresh loan. In fact, you do the complete opposite.


 But You Need Money…


There’s one huge caveat to this. You need money! Yes, if you actually want to save money on your mortgage without refinancing, you’ll need to make larger payments.

So for those looking to refinance to free up some cash, this method isn’t for you.

But for those who have extra cash lying around, you can get the same interest savings associated with a refinance by paying extra each month or in one lump sum.

Just keep in mind that the extra payments won’t lower future monthly payments. It’ll just reduce your term and total interest expense.

And who knows – if you pay down your mortgage more quickly now, you might be able to refinance in the future more easily because you’ll have a lower loan-to-value ratio.

source:  thetruthaboutmortgage.com

Thinking of Refinancing? 4 Good Reasons to Follow Through

For the past couple of years, mortgage rates have been lower than they’ve been in decades. So if you’re thinking about refinancing your home loan, now’s as good a time as ever.

Refinancing involves getting a new home loan to replace an existing one. If you’re unfamiliar with refinancing or if you don’t understand the benefits, trading one mortgage for another might seem pointless. However, refinancing a mortgage loan is one of the most effective ways to modify your mortgage terms. Here’s a look at four things you can accomplish by refinancing your home.

1. Get a cheaper interest rate

Since mortgage rates can change from year-to-year, the rate you’re paying might be higher than current mortgage rates. You might also have a higher rate if you didn’t have the strongest credit score when originally applying for the loan. If your credit has improved since buying the home, this is your chance to get a cheaper rate. Unless you’re able to get a mortgage modification, refinancing is the only way to take advantage of lower mortgage rates, which can save thousands in interest over the life of your loan.

2. Get a lower mortgage payment

Not only can refinancing lower your mortgage rate, it can lower your mortgage payment. Your monthly payment is based on your loan amount and your interest rate. And if your monthly interest charges decrease due to a lower rate, so does your mortgage payment.

Depending on the difference between your old and new mortgage rate, refinancing can potentially reduce your mortgage payment by hundreds every month. This creates additional cashflow that can be used for other purposes, such as paying off credit cards, saving for retirement or building an emergency fund.

3. Get a fixed-rate mortgage

If you have an adjustable-rate mortgage, refinancing to a fixed-rate home loan is the only way to get a fixed, predictable mortgage payment. Adjustable-rate mortgages have a fixed-rate period, which is typically between three and five years. After this period, the interest rate resets every year, either increasing, decreasing or staying the same. Locking in a fixed-rate offers protection from rising interest rates.

4. Get cash from your equity

If you’re sitting on thousands of dollars of equity, you don’t have to sell your property to get this money. A cash-out refinance puts equity in the palm of your hands. You can use the money for debt consolidation, college expenses, a wedding, home improvements or start a business. You can borrow up to a percentage of your available equity, usually 80 percent. Just know that a cash-out refinance increases your mortgage balance, often resulting in higher monthly payments.

The Bottom Line?

There’s plenty to think about before refinancing your mortgage loan. It’s important to understand exactly why you’re refinancing, and you need to weigh the pros and cons. There’s no way to know for certain when rates will rise again. So take advantage of low mortgage rates and save money while you can.

source: totalmortgage.com

Mortgage Rates on the Rise?

According to data recently released by Zillow, 30 year fixed mortgage rates are currently around 3.73%. After rising to 3.83% over the course of last week, they dropped slightly at the start of this week.

“Rates remained flat for most of last week but jumped sharply after Friday’s exceptionally strong jobs report, before easing back down early this week,” said Erin Lantz, vice president of mortgages at Zillow. “We expect rates to hold steady this week due to little incoming data and the official start of the European Central Bank’s bond purchases.”

Though rates still remain low, many in the industry still expect them to rise later this year, thanks to a slowly improving economy. If you’re considering buying a new home or refinancing, now is the time to do it. To take a look at the rates we can offer, head over to our rates page.

source: totalmortgage.com

Should You Refinance with Your Current Lender?

Refinancing a mortgage is essentially getting a new home loan to replace an existing one. Some people apply for new financing to lower their interest rate, change their mortgage terms, remove a name from a mortgage or tap their equity. However, after you decide to refinance, the next step is choosing a lender.


Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.

Potentially receive a better mortgage rate

Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.

Streamlined process

Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.

Fewer closing costs

Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.

Avoid a prepayment penalty

A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.
If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.

Bottom Line

Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.

source: totalmortgage.com

3 Refinance Options You Should Always Avoid

Mortgage refinancing can be the logical choice for many homeowners. Whether it’s to reduce the interest rate, lower monthly payments or for any other reason, it can be a smart move. However, it’s important to be aware of some common refinancing schemes that can get you into trouble. They are almost always bad deals and should be avoided.

1) Refinance for Free
When refinancing, you will typically end up paying between 2 to 3 percent of the value of your home in fees. These covers things like the application fee, appraisal, title search and legal fees. This is the norm, so being offered a deal to refinance for free should be a red flag that something isn’t right. One trick that lenders will pull is offering “no cost” refinancing where the costs are transferred into something else like a higher interest rate.

Technically speaking, this would be no cost refinancing. But in reality, you end up getting hit with additional expenses later on. The bottom line is that refinancing comes with inherent costs. There’s really no way around it, so it’s best to stay away from lenders with unrealistic promises.

 2) No Closing Costs
The thought of not having to pay anything to close a deal can seem enticing, and unfortunately, many homeowners fall into this trap. With this tactic, lenders often lure unsuspecting homeowners into a bogus deal because they don’t understand the long-term implications. Like refinancing for free, the closing costs usually get converted into a higher interest rate. Although you pay less upfront, your monthly payments will be higher, and you inevitably end up paying significantly more over time.

According to RefiAdvisor, “the only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent. However, there are not very many lenders willing to offer no closing costs loans at this interest rate. In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.”

3) Lower Interest Rate Promises

While you obviously want to find a low interest rate when refinancing, you should be wary of deals that look to good to be true. One trick that’s used by con artists is offering “special programs” or leaseback schemes with below average interest rates. Because there are government programs that help needy homeowners refinance for affordable rates, some scammers will pose as representatives of one of those programs and take advantage of people.

With leaseback schemes, a scammer may pretend to be a real estate investor who wants you to sign over the title of your home so a borrower with better credit can get a new loan at a reduced rate and then sell your home back to you. However, it’s unlikely that you’ll get your home back, and it can cause a host of problems. That’s why you always should be cautious when promised a ridiculously low interest rate.

To ensure the best deal, you should look around, compare your options and negotiate. It’s also wise to stick with a national lender or national bank to reduce your odds of getting scammed. If you have any questions or concerns about a lender, you should perform some research, read comments and see if they have accreditation with the Better Business Bureau.

source: totalmortgage.com

Volume of $1 Million to $10 Million Mortgages Hits All-Time High

It’s no secret that mortgage lending has hit the skids in recent months. There are considerably fewer borrowers refinancing their existing mortgages and home purchases are still pretty sluggish.

Earlier this year, Black Knight Financial Services said mortgage origination volume fell to its lowest point on record for a February, with records dating back to the year 2000.

But one area of the market is on fire. I’m talking about the $1 million to $10 million loan amount niche, also known as super jumbo. Pretty much any loan officer’s dream.

Despite there not being a secondary market for such loans, banks are more than happy to hand them out to their wealthiest clients and keep them on their books.


After all, they’re low risk borrowers who also happen to have a lot of money. And wealth management seems to be all the rage these days.


15,000 Mega Mortgages Were Originated During Q2

Banks reportedly made more than 15,000 mortgages with loan amounts between $1 million and $10 million during the second quarter in the nation’s top 100 metros, the highest total ever according to CoreLogic.

Additionally, sales of homes valued at $2 million and up increased to the highest level since at least 2006 during the first half of the year.

Surprisingly, this is happening at a time when all-cash home sales are also at record levels, which at first glance seems a little strange.

Back in May, RealtyTrac said cash was used for a record 42.7% of residential home sales in the first quarter of the year, which was up from 37.8% a quarter earlier and 19.1% a year prior.

The rich generally pay all cash as opposed to taking out a mortgage, but the crisis has produced a lot of fire sales thanks to the sheer number of underwater borrowers and foreclosed properties out there, which could explain the high all-cash share.

The Rich Have No Mortgage Limits

Still, the rich always have plenty of options, and with mortgage rates as cheap as they are, and banks desperate to get their hands on their assets, we’re seeing a lot more of these mega loans these days.

Per Bloomberg, the rich are happy to take out low-rate adjustable-rate mortgages instead of being forced to sell their stocks, which also happen to be at all-time highs.

And because they get mortgage discounts for having so much money, the deals are pretty hard to pass up. This explains why guys like Mark Zuckerberg and Buffett opt to take out loans instead of simply paying with cash.

Some of the banks issuing the largest number of mega mortgages say they don’t even have maximum loan limits for such clients. For example, Union Bank and Bank of the West will apparently consider any loan request.

Union Bank said it has originated more than 350 mortgages with loan amounts of $2 million or more this year. And loan requests at BNY Mellon for similar loan amounts have increased 30% this year compared to 2013.

Sadly, this comes at a time when first-time home buyers are struggling to take out relatively miniscule mortgages. Of course, the wealthy have no problem putting down 30% or more, which greatly increases their options and chances of approval.

source: thetruthaboutmortgage.com

Don't Count on Home Equity to Fund Retirement

Many people are counting on the equity they have built in their home to help fund their retirement years. But folks who are living without quite enough saved for retirement should be realistic about what that equity can provide. Here are a few reasons to be cautious about relying on home equity to provide for you financially in retirement:

Your spouse will still need a place to live. Some people assume they can use the proceeds of their house if they ever need to check themselves into a nursing home. But you can't sell your home for long-term care expenses when your significant other still needs a place to stay. Don't assume you will be living by yourself by the time long-term care is needed or that your spouse will need it at the same time. Plus, the equity in your home may not even be enough to cover the cost of a nursing home.

The value of your home equity could change. Estimating how much equity you will have in your home if you ever need the money is just a guess. You might refinance in the future, and extend the date you will be totally debt free. House prices also tend to go up and down without warning. Plus, you'll never know how much it will cost you to extract equity from your home if you ever need the cash.


Commissions and taxes will siphon off a big chunk of the value. The standard arrangement is asking the seller to pay the buy and sell realtors 6 percent of the final selling price. Then you have to contend with the possible capital gains taxes. Sure, $250,000 (or $500,000 for couples) of the gains can escape tax free, but inflation will make these seemingly large numbers much smaller in a few decades when you actually need to sell. You might also want to put the house on the market well before you actually need the cash. If you wait until the last minute you may have to sell the property at fire-sale prices because you are in a hurry.

Reverse mortgages can be very costly. Reverse mortgages allow you to continue to live in your home for the rest of your life while also getting some money, but you'll get far less than what your house is worth. The fees and interest rates for this type of loan are often rather high. Plus, if your circumstances change and you want or need to move, the loan becomes due. You may find years after taking out a reverse mortgage that you want to move out. If you don't live there for whatever reason, you'll need to start paying back that loan, which can be a huge strain on your budget.

Downsizing will net you less cash than you probably think. Many people hope to downsize and use the left over equity to supplement their nest egg. This is a great strategy because not only will you get some equity, but the cost of upkeep at your smaller place is likely to be permanently reduced as well. But be realistic about how much money you'll gain from this maneuver. There are extra costs every time you move, so factor that into your calculations in addition to the commissions and taxes.

Home equity can certainly be tapped in case of emergencies in retirement, but often works best as a last resort. No matter what, you'll always need a place to live.

source: dailyfinance.com

How to Refinance Your Mortgage

When you refinance a loan you replace it with a new loan that, hopefully, has better terms and a lower interest rate. Savings could be substantial, depending on the size of the loan and the interest rate change. Although interest rates change constantly, they are now near historic lows, which has prompted many borrowers to refinance.

Online calculators, such as one available on Bankrate.com, can help you calculate how much you can save with a new loan. For a rough guideline, every percentage point reduced equals $1,000 saved for every $100,000 borrowed per year. For example, refinancing a $100,000 loan from a 6% to 4% interest rate would save you $2,000 a year.

All things being equal, the shorter the loan term, the lower the interest rate. Shorter terms also help you pay off the debt faster. That's why many homeowners refinance their 30-year home loans into 20-year, 15-year, or even 10-year mortgages. (See also: 6 Great Reasons for Paying Off the Mortgage on Your Home)

The disadvantage is that shorter terms create higher monthly payments because the payments are squeezed into a shorter timeframe.

All right. Let's take a look the variety of refinancing plans available.

Different Types of Refinancing

 

While many borrowers want the lowest interest rate and hope to pay off debt as quickly as possible, the best loan terms for a particular homeowner depends on their particular situation.


Term

Some borrowers refinance into a longer term, such as a 40-year term, to get the lowest monthly payment possible. Others get a cash-out refinance, or get a new loan that's larger than the current one, to pay for large expenses like a home renovation or new car.


Fees

Fees are probably the biggest downside to refinancing. Mortgages often require the payment of "points" at closing — one point equals 1% of the loan amount. Some points are simply a lender's fee, while bona fide "discount points" lower your interest rate. When seeking a lender, ask if points lower the interest rate.

Other costs to expect include an application fee, loan underwriting fee, an appraisal, title policy, a recording fee, and fee for an attorney or closing agent.

Some lenders offer "no cost closings" or let borrowers wrap their loan costs into the total loan amount — a solution if you don't have enough cash on hand but not the best option if you're trying to pay off the loan sooner.


Lenders

Commercial banks, which hold savings and checking accounts, typically offer refinance loans. Other options include the company holding your current home loan, mortgage banks, firms specializing in making mortgage loans, and mortgage brokers, who accept applications and arrange loans between borrowers and lenders, and credit unions. Credit unions typically serve limited audiences, such as a company's employees and large civic groups, but some credit unions accept anyone who lives, works or worships in their community.

You can also use online tools such as Bankrate to search for lenders.

Refinancing Tips

Follow these simple tips to get the best possible loan.

Understand Your Current Loan

Find out what type of mortgage you have. If your loan is insured by the Federal Housing Administration or is owned or guaranteed by Fannie Mae or Freddie Mac, you might qualify even if your mortgage balance is larger than your home's value and you have little or no home equity.


Review Your Credit History

Check your credit at myfico.com for mistakes, which are common, before applying for a loan. Don’t apply for new credit card or another loan, don’t max out a credit card, and don’t make more credit inquiries, all of which can hurt your credit.


Shop Around

Shop around for the best rate and lowest fees. Shopping, comparing, and negotiating can save you thousands of dollars over the life of the loan. Beware of companies quoting rates significantly lower than competitors. It could be a bait and switch tactic or entail high closing costs. A lender can quote you any rate over the phone but is not committed to it until you lock-in the rate, which typically entails a fee.


Take Good Notes

Get everything in writing, including the rate lock information, loan program, mortgage rate, closing costs, and points you’ll pay, if any.


Get Organized

Organize your financial paperwork. Collect your bank statements, tax returns, pay stubs, W-2s, and other income documentation.


Scrutinize Closing Costs

Examine the Good Faith Estimate of costs, which lenders must provide by law. Some fees might be negotiable — so negotiate! Since you already have a title policy, you should get a discount on a policy renewal. Compare the GFE against the final HUD-1 paperwork, which lenders also must provide, for big cost discrepancies.


Review the Paperwork

Ask to see loan paperwork before the day of the closing, so you have time to read the documents.


Have Enough Closing Funds
 
In addition to paying lender fees, you might need money to set up new insurance and tax escrows. The mortgage refinance closing can be delayed if you don’t have enough funds on hand.

source: wisebread.com

7 Good Reasons For a Mortgage Refinance

Bankrate recently posted an article stating that there were 7 good reasons to refinance your current mortgage. Of course I agree with some of the reasons, but there are a few that I certainly disagree with and would advise against doing.










Get a Lower Mortgage Rate

This one is kind of a no-brainer I suppose. If you can get a lower rate, go for it! However, the general rule of thumb is to refinance only if the current rate is 2 points lower than the rate you are locked into. This is when you can be certain that the additional costs of the refinance will be offset in your favor with the lower rate, and therefore, lower payment.

Ditch Adjustable-Rate Mortgage For the Fixed-Rate Loan

I like this plan as well. Since the rates are currently at a historic low, adjustable rates just don’t make any sense anymore. Why would you want your rates to go up in the future? Get that fixed rate mortgage!

Pull Cash From Your Equity to Buy a Second Home

I don’t quite understand this one. During a time of economic turmoil, why would someone want to risk their current house in order to buy a vacation home? Steer clear of this tactic. It has bad news written all over it.

Pull Cash Out to Start a Business

Because my background is in Business Finance, I understand the reasoning behind this move, but it still is very risky. You need to be pretty sure about your business idea in order to do this. If you are going this route because the bank wouldn’t give you a loan, chances are, it’s a bad idea and you’re going to lose your money. Do your homework and put together a business plan that is rock solid. Only then will this option make sense.

Pull Cash Out to Pay Off Credit Cards

This also doesn’t sound like a terrible idea. Since credit cards can carry an interest rate of over 20% and the average mortgage rate is 4%, it’s an obvious savings in interest. However, this makes those credit cards very tempting to use again. My advice is that if you use this option, cut up those credit cards and live below your means by using a debit card instead. Otherwise, don’t do it. It’s too much of a temptation.

Combine the First Mortgage with the Home Equity Line of Credit

I don’t mind this idea. It creates a little more clarity in your mortgage rather than referring to two different lines of credit.

Pull Cash Out to Address Family Matters

The money is often used to help a family member out who is in a bind. The common scenario now is with younger individuals facing foreclosure, and their parents are bailing them out by refinancing their own house.
Also, this option is used by those who may have recently gone through a divorce and need to divide the assets. Since it is difficult to divide a house in two, it is often easier to cash out in order to pay half of the value to the other party.

Unfortunately, this becomes the only option for some, given their scenario. You’ve just got to do what you’ve got to do.

source: lifeandmyfinances.com

Refinancing the Mortgage With HARP

A few years back we refinanced our mortgage to get a lower interest rate.  At the time, we were absolutely thrilled to get a 4.875% mortgage.  I never thought I’d see rates that low.  The only drawback was that we’d stretch the loan back out to another 30 year term.  We decided to mitigate that by paying extra all year long.  We did that by signing up for the free biweekly payment program at our credit union and also added another $300 a month on top of that.  That got us back on track to pay our mortgage off much sooner than the 30 year term.

I recently started receiving offers in the mail to refinance our house because our mortgage was backed by Fannie Mae and was eligible to participate in the HARP program (if needed).  As soon as I opened each letter, I put it right in to the shredder though because I don’t trust mailings like that.  It wasn’t until I got a letter from my credit union saying that my loan was backed by Fannie Mae and I might be eligible for a lower interest rate that I really started thinking about it.  When I looked in to the current rates at my credit union, I was disappointed to see that they were significantly higher than other rates I’d seen.  Instead of going through the credit union, I remembered that I’d read about Costco aggressively offering mortgage services through a select group of banks and institutions so I gave them a try.  It turns out that Costco has, once again, squeezed many of the fees out of the process.  In order to work with Costco, banks had to agree to a $600 cap on loan costs for executive members and a $750 cap for regular members.  Normally most banks would charge a 1% loan origination fee so this saved us a nice chunk of money.  Because HARP is involved, I was also happy to hear that I didn’t have to pay for an appraisal.  This saved us another $400.  All in all, it was very cheap to go through the process.  It was also very painless.  All the interaction happened through email and they are going to come to my house to handle the signing of the documents.  The best part about all of this is that we got a 3.625% interest rate on the new mortgage.

While I’ve been really pleased with the whole process, I was kind of shocked at the amount of detail they wanted us to provide.  We both have credit scores over 800, flawless credit, no debt other than the mortgage, and have really good salaries.  Based on the amount of information we had to provide, you’d never believe we were a good credit risk.

In order to process the loan, here’s what we had to provide:

• 3 pay stubs for each of us
• 2010 tax return
• 2011 tax return
• Proof of insurance on primary home
• Proof of insurance on vacation home
• Latest bank statement
• Proof that home equity loan has a zero balance
• Homeowners Association Bill
• W2 for 2010 for each of us
• W2 for 2011 for each of us
• Settlement statement from last refinance a few years ago

Like I said, you’d think we had bad credit or something.  Things have definitely changed since the high flying days of 2008.  If they are doing this much due diligence with us, I’m sure there are a LOT of people that are out of luck when it comes to getting a mortgage.

Anyway, we are glad we’re doing it.  The 3.625% rate is unbelievable.  Between the rate and putting an extra $20,000 in cash to pay down the balance even further, we’re going to see our payment drop by $400 a month.  We’ll actually be paying more than that because we want to pay the house off much earlier than 30 years but it’s nice to know that if we ever lost our jobs or fell on hard times, we’d have a much lower mortgage payment to deal with.

source: everybodylovesyourmoney.com