Mortgage Rates Still at 2004 Lows, But So are Home Prices

The great news is that mortgage refinance rates are still hovering at record low levels! Not so good news is that home prices continue to plummet.

House prices plunged again in October, with the rate of year-over-year decline accelerating to a new record high of 19%. The peak-to-trough decline in the Case Shiller 10-city index is now 25%; the 20-city index is down 23%. Although, many can stand to reap significant benefit by refinancing into current low fixed rates, they may not have adequate equity in their home to take advantage.

It was a common scenario in this decade’s real estate boom for home buyers to finance their house with as little as a 0% to 10% down payment. So, a home purchased for $200,000 in 2005 may only appraise at $160,000 to $180,000 today and spoil any hopes for one to refinance into today’s low mortgage rates as there is either no equity available or even a negative equity scenario, once closing and settlement costs are rolled back into the potential new home loan.

Now, before you freak out and think your home’s value is sinking, consider that the above statistics are only averages. In fact, there are many regions in the country that have experienced little to no depreciation in home value for 2008. Home sales in your specific region, or even neighborhood, is what really matters when it comes to housing values. A home situated in a high cost city in the state of California may have lost 35% of value in 2008, where a home in an average sized community in North Carolina may have held a stable value during the same period.

It is more important than ever to get an idea of the current market value of your home when shopping for a refinance home loan. There are a number of online websites that will give a free estimate of your home’s worth without requiring you to give personal contact information. Just keep in mind that these sites can be off the mark, but will give a homeowner a general idea of their home’s value. The final judge of home value will be determined after a home appraisal is completed.

So how do I take advantage of the current low mortgage refinance rates if I don’t have a lot of equity remaining in my home? Consider checking into an FHA refinance home loan. Qualified FHA refinance rates are currently low also, almost at prime conventional rates, even with high loan-to-value loan scenarios. Most FHA lenders will allow up to a 97% loan-to-value ratio for a straight refinance, and up to a 95% loan-to-value ratio for a cash out refinance. Yes, mortgage insurance will apply, but you may be surprised at the overall savings when refinancing into the current offered FHA mortgage rates.

Well, to say that the year in mortgages has been a crazy ride would be an understatement. Par rates for 30 year fixed mortgages have taken a roller coaster ride between 5% and 6.5%. Home prices have been erratic and lender-underwriting guidelines have changed by the week. Foreclosures and late mortgage payments have hit all-time highs, with little real relief for those affected. We have experienced the fear of a total collapse of our lender and banking system, and witnessed unprecedented government actions to curtail financial doom, while stimulating home purchases and refinances. Many lenders closed up shop while others downsized, just in time for a year-end blessing of super low mortgage rates.

Yes, it has been an adventurous year, not only for mortgages, but the economy as a whole. Many have lost homes, jobs, and savings, but all is not lost. As we all know, what goes up must come down, but remember the opposite is also true. Thank goodness for 2009, and may you have a Great New Year!

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Refinancing and Private Mortgage Insurance (PMI)

Private Mortgage Insurance ( PMI ) is required by conventional and FHA refinance lenders for individuals that borrow more than 80 percent of their home's value. This insurance is a protection for the mortgage lender from default on the loan. PMI is not a protection for the borrower.

Mortgage Insurance is typically paid monthly by the borrower, and included with the mortgage payment. Including PMI, your total monthly mortgage payment is made up of Principle, Interest, Mortgage Insurance, Taxes, and Homeowner's Insurance. Private mortgage insurance is a tax-deductible expense, beginning in 2007.

Mortgage Insurance (PMI) Cost?

PMI charges are dependent upon the Loan-to-Value ratio and the amount to be refinanced. The more that is refinanced above 80% of the home's value in five-percent intervals (ie: 80%, 85%, 90%, 95%, 100%), the higher the percentile used for the monthly PMI payment calculation. For instance, an 80% Loan-To-Value can bring a .50 percent multiplied by the loan amount for Mortgage Insurance, where a 95% Loan-To-Value ratio may bring a .75 percent of the refinanced loan amount for the PMI calculation. Figure on a .70 percent as an average PMI percentile for estimation purposes.

PMI Example:

Assume refinancing your home valued at $200,000 with a loan amount of $170,000. Multiply the $170,000 loan amount by .007, resulting in an annual PMI of $1,190. Next, divide the $1,190 by 12 for your monthly Mortgage Insurance payment of $99.17.

Terminating PMI

The Homeowner's Protection Act (HPA) of 1998 provides protection for home loan consumers regarding private mortgage insurance.

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80% of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. Lenders should automatically terminate PMI payments once the loan balance falls below 78%

It is always a good idea to keep track of your principle balance and notify your lender once you approach that 80 percent Loan-To-Value ratio to make sure your mortgage insurance payment is cancelled at the appropriate time.

May the Mortgage Rates be with You!

Refinance Tool Box