Current Low Refinance Mortgage Rates and Home Loan Term Reduction

Way back in the early part of 2009, the refinance mortgage rate spread difference between a 30-year fixed rate mortgage and a 15-year fixed rate home loan was virtually negligent. Many refinancing homeowners opted for the 30-year mortgage and the lower payment, since the cost of the interest rate was pretty much the same. The feeling was that the borrower could pay extra toward the principle to reduce their loan term or simply take advantage of the monthly savings for something else. The key was that the option was in the hand of the homeowner to make that decision.

Fast-forward to present and the interest rate spreads are vastly different. 15-year fixed rate mortgages are much cheaper than their 30-year counterpart.

For instance, I just ran a rate search for a loan scenario with a $250,000 home value, $200,000 loan amount and a 760 credit score. The closest to par or “even’ rate for the 30-year fixed is at 4.875%, while the closest to par for the 15-year fixed is 4.25%.

Yes, there is currently a significant reduction in rate for shorter-term loans.

If a refinancing homeowner took the 30-year mortgage option for their new $200,000 home loan, their monthly principle and interest payment would be $1,058 and total interest paid for the term of the loan would amount to $181,029.

Taking the 15-year option would result in a monthly principle and interest payment of $1,504 and total interest paid over the term of the loan would be $70,820.

The interest saved by choosing the 15-year refinance is $110,209!

Now, you might say that is all well and good but the monthly payment difference is $446. That is why it is extremely important to take the new payment into consideration before refinancing into a shorter term. You must be comfortable with the new payment.

Also consider that the increase in monthly payment may not be as significant from your current payment, because mortgage refinance rates are currently so low.

For example, if the borrower in the preceding example is refinancing from a $200,000 30-year mortgage taken out 2 years ago at 6.5%, their current monthly payment for principle and interest is $1,264. Refinancing into the 15-year option would result in only a $240 per month difference, plus a reduction in loan term of 13 years along with total interest savings of around $200,000.

Also, for those consolidating debts, a term reduction can lead to a lower overall monthly payment in many cases.

The long and the short of it is that there are many options to save significant dollars when mortgage refinance rates are as low as they are now. Planning your benefit in conjunction with your new mortgage timeframe is a smart way to go.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

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Refinance Mortgage Home Loan Demand Soaring Again

The cure for sagging refinance mortgage application numbers is a good ole drop in interest rates, and that is exactly what has happened over the past several weeks. The combination of a consistent low 10-year Treasury yield and a falling mortgage spread premium has national average refinance rates for 30-year fixed rate home loans dipping below 5.0 percent for the first time since March of 2009.

To put a little perspective on the current mortgage rate picture, last year at this time, interest rates were over 6.0 percent.

The MBA's seasonally adjusted index of refinancing applications increased 17.4 percent to 2,881.5, its highest since the week ended May 29. Much of this may be due to the refinancing homeowners that stood on the fence earlier in the year, missing their rate lock opportunity before rates went up to 5.5 percent later in the summer. Now that par rates are under 5.0 percent for many home loan refinancing programs, the fence sitters have decided to jump on the opportunity and get over the fear that rates could drop even further.

In reality, the risk for rates to go up from here is much greater risk than waiting to see if rates come down. You might be risking the possibility for a 4.75 percent average market interest rate if rates drop for a 6.0 percent or higher rate if the mortgage market turns.

In other good short-term news, low mortgage rates combined with the government’s $8,000 tax credit stimulus bill for first time homebuyers has helped to stabilize the housing market. We actually had a slight price gain in housing for the last reporting month. We’ll take it!

As always, if you are considering a refinance, make sure to get a solid pre-qualification before you apply for your new home loan. Yes, it may take a little extra time on the phone with your home loan consultant, but it will be more than worth the effort.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Mortgage Refinance Rates Still Hovering Near All-Time Lows

The year 2009 has been great for mortgage refinance rates. We started off the year with a bang, as interest rates for 30 year fixed mortgages dipped below 5.0% for a brief period, before gradually climbing back up to the 5.5% level into the summer.

Fortunately, for those that missed their lock opportunity earlier in the year, rates have once again dipped to near historic low levels.

Mortgage refinance rates have been helped by the consistent 10-year treasury yield that has held near the 3.5% level for quite some time. The mortgage spreads have also come down with this recent mortgage rate dip.

Added to these mortgage rate-reducing factors, the US government recently plunked down billions to buy mortgage-backed securities that have been glutting the market. This may be helping to free up some lender and investor capital back into the mortgage markets.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

FHA Mortgage as an Alternative to Jumbo Conventional Loans?

There are many people that purchased homes in the “high-cost” areas of the country during the great real estate boom of the mid 2000’s. A rather larger percentage of these home loans were either adjustable rate mortgages or high loan-to-value (LTV) loans that carried a higher rate of interest.

With mortgage refinance rates being as low as they are now in the home loan market, it makes a lot of sense for these folks to refinance out of that adjustable rate or into a much lower fixed rate at present time. The problem for many of these homeowners is that the rapid decline in home prices over the past couple of years has tapped most of the remaining equity in their homes, and conventional refinance mortgage rates are relatively high for LTV’s over 90%, plus the ever skyrocketing cost of monthly private mortgage insurance (PMI) for conventional loans.

Another hurdle to folks in the expensive neck of the woods is to find competitive refinance rates for home loans over $417,000, which for the most part, are currently priced at a higher rate of interest for Jumbo conventional mortgage status.

One way to potentially sidestep this issue is to inquire about an FHA refinance home loan. In many high-cost areas, FHA loan limits far exceed the $417,000 cap imposed on conventional loans, and still give you rock-bottom current market interest rates.

Another benefit of the FHA mortgage is that you can refinance up to 97 percent of the appraised value of your home and not have to worry about your interest rate going through the roof. In a declining housing market, where your LTV is tight, this can give you a little extra breathing room as compared to a conventional home loan option.

It is important to note the FHA refinance will require a 1.75% upfront mortgage premium (UMP) that is added to the loan amount, but not included in the LTV calculation. Make sure to get your rate quote with the (UMP) added into the loan amount so that you have the “bottom-line” numbers for your home loan comparisons.

On the refinance mortgage rates front, rates continue to hold steady at near historic low levels. The mortgage-spread premium has declined a bit, and the 10-year treasury yield continues to be kind.

The housing value front is still a bit muddied as both pending and sold sales figures have improved in recent months, but the word on the street is that another wave of home foreclosures is about to hit the market.

All in all, just another crazy week in the world of home mortgage refinance.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

A Deeper Look into Refinance Closing Costs

Now, I know that most everyone hates the closing costs associated with refinance home loans. In fact, most people feel that any cost or fee for a new mortgage is completely unacceptable. But, before you hang up the phone on your friendly loan officer upon the first mention of mortgage closing costs, please review the whole financial picture for your mortgage scenario, or you may be throwing tens of thousands of dollars in benefit out the window for spite.

First things First. There are actual and legitimate costs associated with a refinance mortgage home loan. Fees must be paid for title searches, attorneys, title insurance, closing agents, etc. Also, depending upon your state of residence, there may be a state mortgage tax. Most home refinance lenders will also charge a fee for your application and loan processing along with an underwriting fee, which are real overhead expenses incurred by your mortgage lender of choice.

First things Second. Most lenders will also charge an “origination’ fee, which is a percentage of your total loan amount and the real place where a lender makes their money, since the previously mentioned costs go to either third party vendors or for operating overhead, the origination fee is where the real profit lies.

First things Third. A borrower may choose to “Buy-Down” their interest rate using discount points, which are added upfront to closing costs. One discount point equals one percent of your total loan amount. A lender does not typically make any money when a borrower uses discount points, except in the case of a mortgage broker that sells a borrower a higher rate of interest than the “Par” or “Even” interest rate, whereby the broker receives a rebate back from the bank holding the mortgage.

As you might guess, refinance closing costs can add up rather quickly, especially for those utilizing discount points and for those that have rather large total loan amounts. A potential borrower may look at the bottom-line closing cost amount and quickly jump to the conclusion that their lender is trying to rip them off, but that is most likely not the truth. What you may view as a large closing cost sum could be one of the best long-term investments you will ever make.

As previously mentioned, a home mortgage lender really makes their money or profit from the origination fee that they charge, since all other costs are going to cover third party vendors and the overhead cost of running their business, including the processing of loans.

If the refinance lender charges, say a 1% origination fee on a $300,000 loan amount, that leaves $3,000 for the coffers. Now, you might feel that is even too much, but consider the following.

Of that $3,000, your refinance lender has to pay the loan officer that handled the loan, which generally may be a 50/50 split. The remaining $1,500 will then be hacked down again for a loan loss reserve, which could be as high as $500, leaving $1,000 for lender profit.

Now consider that the $1,000 profit is for a loan, which of course, closed. As we all should be aware, a percentage of mortgage applications never make it to closing, yet the lender has invested time, resources and money into these loans at a loss, which eats into the profit of successfully closed loans.

You now may be getting an idea to one of the reasons why so many mortgage lenders have closed their doors in the past several years.

From a mortgage borrower’s perspective, it is easy to understand why the “alert” radar kicks in after reviewing their good faith closing costs totals, but that may be an uninformed assessment at first glance.

Yes, there are mortgage refinance lenders that charge more than others, and may inflate processing, application, and title fees.

Also consider there are huge loan processing and customer service differences among home loan lenders. Comparing lenders on fees alone, without taking their “service” level into account could be a costly error.

The preceding closing cost information is meant as a general overview of closing costs and how lenders make their money, but is not how every lender operates. In any event, the information should give you a better general understanding of refinance closing costs and in an odd sort of way, actually make you feel better about them when you understand that your lender is not socking away all those closing costs into their pockets.

Now to the moral of the closing costs story:

Say you are offered a competitive refinance rate on a new 30 Year Fixed Rate home loan that will save you $200 per month. The total closing costs amount to $3,000, which are rolled into your new loan. The closing costs will have paid for themselves in 15 months ($3,000 divided by $200). If you stay in you new mortgage for more than 15 months, it looks like a good deal. If you stay in your new mortgage for the loan term, you will have saved $69,000 in total (360 months minus 15 months breakeven times $200/month savings), which is a great deal.

If you scoffed at the deal originally because of the $3,000 closing costs, that could come back to haunt you in the future. Also keep in mind that most refinance closing costs are rolled back into your loan amount so you are not paying that money out of pocket at closing. In a sense, you are using the mortgage lender to finance your long-term benefit, just like big business operates. If your timeframe for your new mortgage is longer than the breakeven point, then closing costs can be viewed as a great deal, and smart business.

Having the proper perspective on refinance closing costs is particularly crucial with today’s refinance rate environment, as interest rates are pretty much at historic lows. If you reject a new home loan deal because you deem that closing costs are too high, your “benefit” time horizon may pass you by as interest rates rise. Always look at your bottom-line benefit and your expected loan timeframe before closing the door on a potential home refinance opportunity.

Working with a lender that quotes upfront and guaranteed closing costs will be a big help for a refinancing homeowner. Your prospective new lender should be able to detail all closing and settlement costs, plus go over your breakeven analysis with you. In the end, the numbers will tell the story and you can act in your own best interest based on your bottom-line benefit in conjunction with your loan timeframe. The numbers just may result in a very pleasant surprise for you, even with closing costs.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box