• Tweet

The housing market may yet be the proverbial tortoise. Month after month — slowly and surely — data proves what REALTORS® have known for six months. The bottom is behind us. The market is returning.

Click here to get mortgage rates.

New Construction Grows Steadily, Consistently

In the housing market — as with other industries — the mid-2000s were characterized by three things : (1) Over-hoping, (2) Over-hyping, and (3) Over-building. Home builders took a Fields of Dreams approach to construction. They bought land wherever possible and built, built, built.

Of course, we know how that story ended (and it wasn’t with Ray Kinsella playing catch with his dad).

This time around, we have to believe that developers know better; that they learned their lesson; that out-building demand can be a bit too much risk. 

If the data is correct, it appears that they have. 

According to the Census Bureau, on a seasonally-adjusted, annualized basis, January’s Single-Family Housing Starts eased 1 percent to 508,000 units nationwide, breaking a string of 4 straight months of improvement over which single-family starts climbed 22%.

A “housing start” is a new home on which construction has started.

Data like this suggests a more cautious approach from builders, even as the market gives reason for optimism. For example, although January’s Housing Starts data was a slight retreat from the month prior, it still marks the second straight month that single-family housing starts surpassed a half-million units.

It’s been two years since that’s happened.

Click here to get mortgage rates.

Mortgage Rates Climb With The Housing Market

Since 2010, mortgage rates have been in steady decline. There are a lot of reasons why but mostly it’s because, in an uncertain economy, Wall Street seeks safety of principal. To investors, stocks are “risky” and bonds are “safe”. 

Meanwhile, mortgage rates are bond-based so when demand for bonds is high, rates for mortgage are low. This is why a weak economy can correlate with low mortgage rates.

Thursday, mortgage rates spiked.

When the Housing Starts data was released, its strength surprised Wall Street. Analysts know that housing is a keystone to economic recovery and it’s becoming increasingly clear that, on a national level, the housing market likely bottomed in August/September 2011.

That said, the Housing Starts report should not have been a surprise at all. 

Earlier this week, the National Association of Homebuilders said homebuilder confidence was at its highest point since 2007. Builders are recording more sales, and based on soaring levels of foot traffic they’re expecting 2012 to finish even stronger than it started.

Builders are building and buyers are buying.

Click here to get mortgage rates.

Buying New Construction? See Today’s Mortgage Rates.

Anecdotally, the housing market is doing great. From King County, Washington, to Blacksburg, Virginia, REALTORS® report that buyers are eager, sellers are wiser, and homes sell quickly. Multiple-offer situations are more common than in 2011 and mortgage rates make homes cheap.

If your plans for 2012 call for buying new construction, consider moving up your time frame. As builder confidence rises and home supplies get scarce, you’ll be less likely to find that “great deal”. Today, by contrast, the market looks ripe it.

Make your budget. Get a mortgage rate, plug-in the numbers, and see what works for you. While you can.

Click here to get mortgage rates.

• Tweet

The federal HARP mortgage refinance program can be a huge boon for underwater homeowners. But if you have private mortgage insurance (PMI), what you have to pay on most mortgages if you buy a home with less than a 20 percent down payment, there’s a little hitch you should know about.

While refinancing a mortgage through HARP can cut your interest rate and save you money, it can also extend the length of time you need to carry the PMI, perhaps by many years. And that can significantly reduce the savings you get from refinancing.  You can ask to have it canceled once you reach 20 percent equity (your mortgage balance equals 80 percent of the current value of your home), which can occur through paying down your mortgage, rising home values, or both.

Click here to see today’s HARP mortgage rates.

But here’s the issue: though they may not realize it, most borrowers are entitled to have PMI automatically canceled once their mortgage balance falls to 78 percent of the original value of their home, even if the property is no longer worth that much. That’s a federal law, established by the Homeowner Protection Act of 1998.

When a borrower with PMI refinances their underwater mortgage through HARP, that process starts all over again.

According to rules set forth by Fannie Mae and Freddie Mac, which administer HARP, the 78 percent figure for automatic cancellation is based on the value of the new loan. The savings most borrowers who are underwater on their mortgages get by refinancing to a lower mortgage rate will exceed the cost of continuing to carry PMI. But if you’re due to have PMI cancelled before HARP expires at the end of 2013, or if your savings from refinancing would be relatively modest, you might reconsider.

Click here to see today’s HARP mortgage rates.

• Tweet

When you own a home, fiscal responsibility goes deeper than just monthly principal + interest payments.

There are taxes and insurance to manage, too.

Click here to get a rate quote.

Defining PITI

The mortgage contract requires homeowners to make 4 payments each month — principal, interest, taxes, and homeowners insurance — collectively known as PITI.

Pronounced “pee-eye-tee-eye”, PITI is your “housing payment” and failure to make it can have consequence.

As an example, when you don’t make your principal + interest repayment, it can invoke your mortgage contract’s acceleration clause, resulting in foreclosure.

Or, if you fail to pay your home’s real estate taxes and/or hazard insurance premiums, that, too, can result in foreclosure and/or invoke your mortgage’s loss payee clause, respectively.

The short story is this : don’t miss a payment.

Click here to get a rate quote.

You Can Waive Escrow, Or Pay Escrow Monthly

With a conventional loan (i.e. loans through Fannie Mae, Freddie Mac), lenders let homeowners choose how to manage yearly tax and insurance obligations. 

You can opt to pay the bills in full when they come due by yourself, or you can choose to pay 1/12 of the annual bill to the lender each month which, in turn, pays the bills for you upon their respective due dates.

The latter method is known as “escrowing” taxes and insurance. The former is known as “waiving escrows”.

Waiving escrows is rarely permitted for homeowners with loan-to-values in excess of 80 percent.

Not surprisingly, loan servicers prefer that homeowners escrow. Escrowing taxes and insurance reduces two major lender risks:

1. That a home’s real estate taxes go delinquent and are sold to a third-party
2. That a home endures major damage during a lapse of insurance coverage

Servicers prefer escrows because, in theory, a home’s taxes are always current and the home’s insurance is always paid.

For homeowners with an FHA mortgage, VA mortgage or USDA mortgage, escrowing for taxes and insurance is mandatory. You cannot waive escrows on an FHA loan, for example.

Click here to get a rate quote.

How To Find Your Monthly Escrow Payment

To figure out how much escrows will add to your mortgage payment each month, you may not need a calculator.

Take the sum of the annual real estate tax bills and insurance bills for your homes, then divide that number by 12 months in the year.

As an example, a Bucks County, Pennsylvania home with a $ 8,400 annual tax bill and a $ 1,200 insurance policy = $ 9,600 annually = $ 800 paid into escrow monthly. These monies are lumped into the “regular” mortgage payment each month, along with the mortgage’s scheduled principal + interest payment.

Most mortgage statements itemize what’s being paid into each PITI category for the homeowner’s records.

Click here to get a rate quote.

When You Escrow, You Get Lower Mortgage Rates

Because escrowed loans are lower risk to lenders, homeowners that choose to escrow tend to get the lowest rate, lowest fee loans.  This is the result of lenders charging a premium to homeowners wishing to “waive escrow”. It’s a risk compensation thing.

Escrow waiver fees vary between banks, and not all banks will charge them, but the cost can range up to half-percent of the amount borrowed. The larger the loan, in dollar terms, the stiffer the penalty.

Alternatively, waiving escrows can also raise your mortgage rate by up to 0.250 percent.

Can You Get A Loan With No Escrow Waiver Fees?

Not all lenders charge an escrow waiver fee so if you prefer to “pay your own way”, tell your lender. Jumbo lenders are most likely to let you waive escrows without penalty.

Click here to get a rate quote.

• Tweet

Low mortgage rates have a funny way of changing people’s perspective. With Freddie Mac’s published mortgage rates sub-4 percent, homeowners are doing what it takes to refinance into today’s low mortgage rates — even if it means bringing some cash to closing.

For the first time in history, nearly half of all refinancing households lowered their loan balance at the time of closing.

Click here to get a mortgage rate quote.

The “Cash-In” Refinance Gains In Popularity

If you’ve never heard of a cash-in mortgage, you’re not alone. They were relatively rare until just a a few years ago. Cash-in mortgages are a specific type of refinance in which the homeowner voluntarily lowers his loan balance at the time of closing.

A cash-in mortgage is the opposite of cash-out mortgage.

Cash-in mortgages have been increasingly popular since the Federal Reserve’s initial mortgage market intervention in late-2008. The Fed’s $ 500 billion MBS pledge at that time placed mortgage rates into their current trajectory that lowered conforming rates to below 4 percent.

The drop in rates, however, coincided with an unprecedented drop in home values nationwide.

Homeowners who had put 20% equity down at the time of purchase and now wanted to refinance, because of falling values, found themselves subject to monthly PMI — something they paid 20% down to specifically avoid.

This was before the HARP program, of course, so the only way for homeowners to refinance into low rates was to voluntarily pay down their respective loan balances so that the 20% equity ratio was maintained.

The farther rates fell, the more frequently this happened. It’s no surprise, therefore, that with today’s mortgage rates at all-time lows, 1 in 2 conforming refinances is a cash-in mortgage.

Click here to get a mortgage rate quote.

Cash-In Refinancing : Earn 7.18% On Each Dollar Paid

Beyond just “low mortgage rates”, there are plenty of reasons to consider a cash-in refinance.

The first is that your mortgage rates is too high for your liking and paying down your mortgage is the only way to refinance.

There are a lot of homeowners — especially ones with jumbo mortgages or in high-cost area such as Loudoun County, Virginia and Montgomery County, Maryland — who are HARP-ineligible for any number of reasons and just want to take advantage of today’s low rates.

Another reason is that, right now, your idle cash on the bank is exactly that — idle. With the Federal Reserve holding the Fed Funds Rate near 0.000%, and with inflation below 2 percent on an annual basis, checking and savings accounts nationwide are yielding close to zero percent interest.

If you moved those dollars from your bank account to your mortgage balance, you would earn an immediate return on your dollar. Each dollar you knock from your mortgage balance is a dollar on which you won’t pay interest for the next 30 years and that adds up to big savings.

At today’s mortgage rates, no matter what your loan balance, if you do a cash-in refinance and lower your loan balance by just $ 1,000 at closing, you’ll end up saving $ 1,718 over the life of your loan.

Click here to get a mortgage rate quote.

Cash-In Refinances May Be Less Popular in 2012

According to Freddie Mac, cash-in refinances soared to a record quarter last quarter on a combination of low mortgage rates, sagging home prices, and the cyclical nature of conforming loan refinancing.

As it turns out that the 4th quarter, historically, is the most popular quarter for cash-in refinances. It’s not even close, either. In 10 of the last 11 years, the 4th quarter has been the most common period during which homeowners execute a cash-in refinance.

On a quarter-by-quarter basis, going back to 2000, cash-in refinances register as follows :

• 1st Quarter : Cash-in refinances account for 11% of all conforming refinances
• 2nd Quarter : Cash-in refinances account for 12% of all conforming refinances
• 3rd Quarter : Cash-in refinances account for 16% of all conforming refinances
• 4th Quarter : Cash-in refinances account for 22% of all conforming refinances

Therefore, we should expect cash-in refinance activity to dip this quarter just because of how mortgage refinance cycles work. However, there are other factors at play, too.

For one, the government has introduced — or will introduce — a slew of new mortgage programs meant to help underwater homeowners gain access to today’s low mortgage rates. The most well-known of these programs is the HARP program, the mortgage for “underwater homeowners”.

Loan programs like HARP remove the need for cash-in refinances entirely.

And, home values are rising. As home values rise, homeowners nationwide find themselves with additional home equity they thought would be lost forever. As home equity replaces itself, fewer homeowners will need to take the cash-in refinance as a means to avoid PMI — they’ll have 20% equity all on their own.

Click here to get a mortgage rate quote.

Get A Mortgage Rate For Your Cash-In Refinance

If you’re thinking of doing a cash-in mortgage — or have no choice because of an appraisal — make sure you know your options first. There are alternatives to cash-in refinancing, including the government’s revamped HARP program; the standard FHA refinance; and, for veterans of the military, the VA loan program.

Ultimately, the cash-in refinance may work best, but you’ll want to see your rates and options first.

Click here to get a mortgage rate quote.

• Tweet

As compared to conforming loans and jumbo mortgages, FHA-backed loans are great for a lot of reasons.

FHA mortgages allow purchases with low downpayments; they allow refinances without appraisal; and FHA mortgage rates are often pretty low.

One place where FHA mortgages fall short as compared to other loan types, however, is with respect to mortgage insurance. FHA mortgage insurance can be cumbersome and costly.

If you’re going to take an FHA-backed mortgage, you need to know how FHA mortgage insurance works.

Click here for an FHA mortgage rate quote.

With FHA, Everyone Pays Mortgage Insurance Twice

The FHA’s role in Mortgage World is different from Fannie Mae and Freddie Mac. The FHA doesn’t “buy mortgages” from banks like Fannie and Freddie do. Rather, it insures them.

It works like this : The FHA issues mortgage guidelines to which banks can underwrite a mortgage. These mortgages are commonly called “FHA mortgages”.

If a bank underwrites an FHA mortgage and the loan goes into default, the FHA repays the bank’s losses from its capital reserves. The FHA’s capital reserves are funded by mortgage insurance premiums paid by the nation’s FHA-insured homeowners.

FHA homeowners pay two types of mortgage insurance – Upfront Mortgage Insurance Premiums and Annual Mortgage Insurance Premiums. These insurance types are sometimes abbreviated and known as UFMIP and MIP, respectively.

Since April 18, 2011, every FHA-insured homeowners has been required to pay both forms of FHA mortgage insurance.

Click here for an FHA mortgage rate quote.

How To Calculate Your FHA Mortgage Insurance

The FHA’s mortgage insurance requirements are generally simple.

FHA Upfront Mortgage Insurance Premiums

The FHA’s current upfront mortgage insurance premium (UFMIP) is 1 percent of your loan size. For example, if you want to apply for an FHA purchase mortgage and your loan size is $ 300,000, then your Upfront MIP will be equal to $ 3,000.

Upfront MIP is not paid as cash. It’s automatically added to your loan balance by the FHA. Therefore, your final loan size in the example above will be $ 303,000.

Furthermore, upfront MIP is not used in your FHA loan-to-value calculation. This means that you can make a 3.5% downpayment on your purchase, add the 1 percent UFMIP to your loan size, and still meet the FHA’s low downpayment guidelines.

Upfront MIP is paid to the FHA upfront, at closing, and never paid again. Hence the name, “upfront” MIP. However, because UFMIP is added to your loan balance, you do pay mortgage interest on it for the life of your loan.

FHA Annual Mortgage Insurance Premiums

The FHA’s other type of mortgage insurance is paid monthly. Called Annual Mortgage Insurance Premiums (MIP), it’s paid as a part of your mortgage statement.

Annual MIP is required on all FHA mortgages and premiums vary according to your FHA loan’s individual characteristics. The FHA’s MIP table is below :

• 15-year loan terms with loan-to-value over 90% : 0.50 percent annual MIP
• 15-year loan terms with loan-t0-value under 90% : 0.25 percent annual MIP
• 30-year loan terms with loan-to-value over 95% : 1.15 percent annual MIP
• 30-year loan terms with loan-to-value under 95% : 1.10 percent annual MIP

As a real-life example, a 30-year fixed rate FHA mortgage in a high-cost area such as Loudoun County, Virginia; or Bethesda, Maryland may be for as much as $ 729,750. If the FHA mortgage is a purchase and the buyer is putting the minimum 3.5% down on the home, the annual MIP is 1.15 percent, or $ 699 per month.

On a 15-year mortgage, the MIP falls to $ 304 per month.

Click here for an FHA mortgage rate quote.

How To Get Rid Of Your FHA Mortgage Insurance

One nice thing about FHA mortgage insurance is that it’s not permanent. FHA mortgage insurance eventually goes away.

The schedule for getting rid of FHA mortgage insurance changes by loan term.

• 30-year loan term : Annual MIP is automatically canceled once the loan reaches 78% loan-to-value and monthly MIP has been paid for at least 60 months.
• 15-year loan term : Annual MIP is automatically canceled once the loan reaches 78% loan-to-value. There is no requirement that monthly MIP be paid for at least 60 months.

In other words, if you have a 30-year fixed rate FHA mortgage, you must pay mortgage insurance for at least 5 years before it can go away — regardless of your loan balance. By comparison, if you have a 15-year fixed-rate FHA mortgage, your mortgage insurance is removed as soon as your LTV is low enough.

No action is needed on your part — the FHA handles MIP removal automatically.

Also, note that the FHA does not allow a new appraisal to determine whether your loan is at 78% loan-to-value. The 78% LTV is based on the lesser of your purchase price, or its original appraised value.

At today’s mortgage rates, a 15-year FHA mortgage on which the minimum 3.5% downpayment was made should pay down to 78% of the original purchase price within 26 months. A 30-year fixed will take 9 years to reach the same point.

Click here for an FHA mortgage rate quote.

Compare FHA Mortgage Rates And MIP

FHA mortgage rates are cheap right now; cheaper than conventional loans and cheaper than VA. There are great bargains for first-time buyers and other households planning on minimum downpayments.

The trick is understanding FHA mortgage insurance. FHA mortgage insurance can be costly in the long run and there’s good cause for comparing options.

Before you lock a 30-year fixed FHA loan, do your due diligence — look at 15-year payments, too. 15-year FHA mortgage rates are often lower than comparable 30-year FHA mortgage rates and the mortgage insurance terms are more favorable.

You’ll pay less MIP each month, and can be rid of it as much as 7 years sooner.

Click here for an FHA mortgage rate quote.

• Tweet

Shopping for a mortgage? The next few months could cause you some heartburn.

Mortgage Rates Unsteady, In Flux

The Federal Reserve recently released the minutes from it most recent Federal Open Market Committee meeting. The Fed Minutes are detailed meeting notes from FOMC meetings, similar to the follow-up notes from a condo association meeting, or a corporate shareholder meeting.

Just how detailed are the Fed Minutes?

The minutes from the last FOMC meeting contained 60 paragraphs and 7,027 words of text.  Now, compare that with the Fed’s initial, post-meeting press release of 5 paragraphs and 382 words and it’s clear that the Fed Minutes are deep.

There’s a lot that the Fed told us in its most recent minutes. For example, the Federal Reserve sees the U.S. economy in slow, steady expansion, but remains wary of ongoing threats from the Eurozone.

For mortgage rate shoppers, it’s a volatile combo that puts mortgage rates in flux. Economic expansion tends to push mortgage rates up. Global economic strife tend to push mortgage rates down.

It’s a tug-of-war that won’t end soon. Today’s mortgage rates may be the lowest we’ll see.

Click here to get a rate quote.

Fed : The Housing Market “Could Be Improving”

The Fed had more to say, too.

According to the Fed Minutes, the U.S. economy has shown improvement since November, but “strains” in global financial markets pose “significant risks” to the downside. This tell us that Ben Bernanke & Co believe that the Federal Reserve’s economy-stimulating programs are working, but that Eurozone issues could be a threat.

The PIIGS — Portugal, Ireland, Italy, Greece, and Spain — have faced notable debt repayment problems, casting a cloud over the entire European economy. Bailouts and restructuring have changed the area’s sociopolitical climate and, while temporary solutions have minimized issues, a permanent fix remains elusive.  

The U.S. economy could be impacted by fallout.

Other meeting consensus from the Fed included :

• On growth : The economy is expanding, despite slowing in “global economic growth”
• On housing : Data suggests the “depressed” market “could be improving”
• On inflation : Prices are stable, and remain within tolerance levels

The next few months will prove interesting. We’ll find out if recent economic trends are just temporary blips on a downward path, or the first steps in an overall recovery. If it’s the latter, all things equal, these sub-4 percent mortgages we’re seeing will go the way of the dodo bird.

Click here to get a rate quote.

The Fed’s Market Policy Communication Policy

The Fed’s analysis was of little surprise to Wall Street, and going forward, Fed Chairman Ben Bernanke wants to keep it that way. The Fed Minutes contained a specific passage regarding market communication, and how the Fed will be more pro-active about it in the future.

In a section called “Market Policy Communications”, the Federal Reserve showed its plans to release economic forecast 4 times annually, and to provide more clarity about the future of the Fed Funds Rate.

This is a dramatic shift in formal Federal Reserve transparency. Over the past 18 months, the Fed has been trying to be more open with its projections, but has never made a formal policy on the same. This may or may not reduce mortgage market volatility going forward. We won’t know until we seen a few of the projections, and how they match with Wall Street expectations.

The Federal Reserve will begin forecasting with its economic projections beginning after its next policy meeting, January 24-25, 2012.

Get A Mortgage Rate While Mortgage Rates Are Low

Mortgage rates are volatile and change without notice. Sometimes, three or four times per day. And remember, if your rate is not locked, it’s floating, and that means that you’re not locked in.

Protect yourself from mortgage rate changes. Get your mortgage rate priced and locked today.

Click here to get a rate quote.

• Tweet

The housing market is quietly building momentum, buoyed by mid-range home values and a growing group of buyers. If your plans for 2012 call for buying a home, the sooner you act, the better “deal” you may get.

Click here to get a mortgage rate.

First-Time Home Buyers Drive The Market

Each month, the National Association of REALTORS® releases its Existing Home Sales report. The Existing Home Sales report includes a tally of Total Units Sold during the month prior; and Home Supply, the number of months it would take to sell the nation’s housing stock given today’s sales pace.

These figures are known as “headline data”; the easy-to-understand data nuggets on which the media reports to the public.

The Existing Home Sales report goes deeper than just headline data, though. It includes all sorts of statistics that can help the astute home buyer better understand what’s really happening in housing.

One such statistic is the real estate trade group’s breakdown of Home Sales By Buyer Type.

In November, the Existing Home Sales report shows, 35 of every 100 buyers were First-Time Buyers, an increase from October and part of a longer-term, pro-housing trend. 

One year ago, First-Time Home Buyers were just 32 of every 100 buyers.

First-Time Home Buyer Financing Spurs Housing

In November, home sales were dominated by homes sold for $ 250,000 or less.

This price point is the domain of the majority of first-time home buyers, with the notable exception of such “high-cost” cities such as Washington, D.C.; San Jose, California; and even Chicago because many of its city condos sell at price points north of $ 250,000. 

For every one else, the combination of relatively low home prices, historically low mortgage rates, plus access to low downpayment mortgages made home ownership possible.

Click here to get a mortgage rate.

As one example, the FHA 30-year fixed rate mortgage allows for a 3.5% downpayment on a purchase, and seller-paid closing costs. The program is also liberal on mortgage qualifiers including credit scores and income history, making the FHA mortgage an ideal choice for first-time buyers.

Ultra-low mortgage rates help, too.

While conventional mortgage rates have dropped to 4% and lower, so have FHA mortgage rates. Today, you can buy and finance a home with an FHA mortgage cheaper than at any time in history. It’s no wonder that 3 times as many mortgages are financed via the FHA versus just 5 years ago.

First-Time Home Buyers have other low downpayment programs available to them, too, including the 100% USDA mortgage and the 100% VA mortgage for veterans of the U.S. military.

You don’t need a 20% downpayment to purchase a home.

Home Prices Rising For First-Time Buyers

When 2011 ended, home sales were rising and home supplies were falling. This combination leads to higher home prices — it’s basic economics. And now, with the jobs market showing signs of a thaw, demand for homes should rise again this year.

When it does, first-time home buyers may find themselves priced out of a purchase, save for falling mortgage rates and access to low downpayment mortgages.

If you’re planning to buy your first home in 2012, therefore, consider buying sooner rather than later. You may find your best deals of the year are the ones you grab early.

Click here to get a mortgage rate. 

• Tweet

Within weeks, new, required loan fees will make buying a home — and refinancing one — more expensive. Save money on your next FHA mortgage, or conventional one.

Start your  mortgage loan application today.

Click here to get today’s mortgage rates.

U.S. Payroll Tax Extension : Funded By New Mortgages

In December 2010, the U.S. government passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The act was meant to stimulate the national economy by lowering taxes, among other plans.

One such stimulus was a one-year FICA payroll tax reduction. FICA stands for Federal Insurance Contributions Act. FICA taxes fund Medicare and Social Security. The act lowered FICA taxes from from 6.2 percent to 4.2 percent for 2011 only.

In late-December, the Congress voted to extend the FICA tax holiday through February 29, 2012 at a cost of $ 33 billion. The bill has been signed into law and implementation has begun.

From Title IV of the bill’s final form, the $ 33 billion price tag will be partially funded by home buyers and refinance households. The bill’s section is titled “Mortgage Fees And Premiums“. In it, Congress instructs Fannie Mae and Freddie Mac, and the FHA to take following specific measures :

• Fannie Mae and Freddie Mac : Increase loan guarantee fees by 10 basis points or more versus current levels, and do not decrease other costs to compensate
• FHA : Increase mortgage insurance premiums by 10 basis points

The extra fees amount to roughly $ 10 per month per $ 100,000 borrowed.

In places like San Francisco or Arlington, Virginia, where local jumbo loan limits reach as high as $ 625,500 and $ 729,750 for conventional and FHA mortgages, respectively, mortgagors should expect to pay as much as $ 73 more each month.

The U.S. Government Changed Your Mortgage Payment

It’s been tough to shop for a mortgage rate since the economy hit the skids in 2007. Mortgage rates have been in free-fall, plunging from near 7 percent on a 30-year fixed-rate mortgage to today’s levels near 4 percent.

But as rates have dropped, loan costs have increased.

• In 2008, the government introduced loan-level pricing adjustments (LLPAs) on all loans.
• In 2009, the government upped its LLPAs 7 times throughout the course of the year
• In 2010, closing costs jumped 37% as banks met government compliance standards.
• In 2011, the FHA more than doubled monthly mortgage insurance premiums.

Each time loan costs rise, it mutes the effects of falling mortgage rates. Low rates don’t matter if high costs wipe them out.

Click here to get today’s mortgage rates.

For 2012, the government’s payroll tax extension’s net effect is to raise mortgage rates by roughly 0.10%. According to Freddie Mac’s weekly mortgage rate survey, this would immediately push conventional mortgage rates to a multi-month high.

In addition, the government has left the door open to additional price hikes, stating that more loan fees may be necessary to meet requirements over the coming months and years.

For FHA-insured homeowners, the increase in the monthly mortgage insurance premium will render scores of homeowners FHA Streamline Refinance-ineligible. All borrowers must meet a 5% minimum savings requirement per FHA Streamline Refinance guidelines.

Raising mortgage insurance premiums by 10 basis points makes it that much harder to be eligible. If you’re FHA and you want to refinance via the FHA Streamline Refinance, get your application and case number now.

New Mortgage Fees “Go Live” In Late-January

Fannie Mae and Freddie Mac have been instructed to start collecting the new, higher guarantee fees effective April 1, 2012.

However, mortgage applicants will notice new fees appearing sooner than that. This is because loans that land with Fannie or Freddie can take 75 days or more to get there.

Here’s why.

First, your loan is locked. Then, your loan is underwritten, closed, and funded. For a purchase or a refinance, this process can range from 10 days to 60 days or longer, depending on the traits of your particular transaction.

Then, post-closing, your mortgage must be prepared for delivery to Fannie Mae or Freddie Mac, a process which typically requires a re-review of your complete loan file and a quality control audit to minimize long-term lender liability.

This post-closing/audit process can be a 1-day thing, or it can take weeks.

Only after the audit is complete will your  loan be delivered to Fannie Mae or Freddie Mac, which is why mortgage applicants everywhere will start paying the new, 10 basis point guarantee fee well in advance of the April 1, 2012 deadline — it takes time to get a loan to the secondary mortgage markets.

New mortgage “payroll tax” fees will be levied on applicants starting no later than late-January.

Click here to get today’s mortgage rates.

Beat The Increase : Start Your Application Now

Once the government’s new loan fees go into effect, they will be required with all Fannie Mae and Freddie Mac mortgage without exception. Loans locked after the rollout must pay the new fee. Loans locked prior will be exempt.

If you’ve been waiting for mortgage rates to fall, it’s time to stop. Don’t get greedy. Rates are already super-low. Besides, falling mortgage rates do little to help when loan costs are rising.

Get locked and exempt yourself from new fees. It’s extra savings to your mortgage.

Click here to get today’s mortgage rates.

• Tweet

When a bank decides your monthly principal + interest mortgage payment, the payment is based on the principles of amortization (ah-mor-ti-ZAY-shun). With respect to fixed-rate mortgages — either conventional, FHA, USDA, VA, jumbo, or other – amortization is the process of paying a loan to $ 0 over time.

Click here for a rate quote.

Comparing Mortgage Payback Schedules

For homeowners, a mortgage amortization schedule’s most important trait is how it renders mortgage payments interest-heavy at the start. There is very little principal that’s goes back to the bank each month, relative to your loan term.

If you’ve ever looked at your mortgage statement after a few years and thought, “I haven’t paid this thing down a bit!”, it’s because of amortization.

Whether your mortgage is a 10-year fixed rate mortgage; a 15-year fixed-rate mortgage; a 20-year fixed-rate mortgage; or, a 30-year fixed-rate mortgage, your loan’s amortization schedule is decidedly bank-friendly. You pay very little principal in the early years of a mortgage.

Here are some numbers on fixed-rate amortization. Comparing $ 300,000 loans at a mortgage rate of 4 percent, after 10 years:

• A 15-year mortgage has 41% of the original $ 300,000 remaining
• A 20-year mortgage has 60% of the original $ 300,000 remaining
• A 30-year mortgage has 79% of the original $ 300,000 remaining

After 15 years of payback, the numbers look similarly disproportionate:

• A 15-year mortgage is paid in full
• A 20-year mortgage has 33% of the original $ 300,000 remaining
• A 30-year mortgage has 64% of the original $ 300,000 remaining

It takes 19 years, 4 months for that 30-year, fixed-rate mortgage to pay down by half. That’s a long time.

Click here for a rate quote.

Strategic Prepay On Your Mortgage

When you refinance a mortgage, you can choose your new loan term. If your initial mortgage was a 30-year fixed rate mortgage, for example, you can choose to lower your term to, say, 25 years or 20 years. 

When you shorten your loan term, your mortgage is “accelerated”. It pays off quicker. This way, you don’t have to stress about “starting your mortgage over” for another 30 years. Just take a shorter term.

You can also strategically prepay on your loan.

Sometimes, there are situations in which you don’t qualify for anything faster than a 30-year fixed-rate loan, or where the thought of being committed to a 15-year mortgage makes you nervous. In cases like this, use amortization to your advantage.

When you refinance your mortgage to a lower interest rate, your principal/interest payments are “rebalanced”; the proportion of principal-to-interest paid each moves shifts clear toward principal. Presumably, you’re saving money each month, too.

Click here for a rate quote.

Accelerate Your Mortgage With “Extra” Payments

Here’s what you do :

• Refinance to the lower mortgage rate. Take a new 30-year fixed.
• Apply your monthly savings to your mortgage as an “extra payment” each month
• Continue until your loan is paid in full

In this example, you’re (1) paying additional principal each month because your interest rate is lower, and (2) applying “excess” money to the principal balance as well. With every rate-and-term refinance, this will get your loan paid off faster than if you never refinanced at all.

As an example, if your mortgage balance is $ 200,000 and you’re refinancing from 4.750% to 4.000% after two years of holding the home loan, your payment will drop by $ 123 per month. However, you’ve added 2 years to your mortgage balance.

Fine. Just take that $ 123 in savings each month, and send it to your lender with your “regular” payment. The result is that you’ll pay your 30-year loan in just 24 years — just for making the same payment you always did.

It’s basic amortization planning.

Refinance Without “Losing Years”

Amortization schedules are tricky and you may not have the formulas handy. That’s fine.

First, click here to get a rate quote. Use that rate in your formulas — you’ll need it. Then, look for a mortgage calculator online that can help you, or send me an email about what you’re trying to do. I can make a worksheet that will help you.

Mortgage rates are very low right now. Amortization schedules will never be in your favor like this again. Take advantage.

Get started with a rate quote.