Refinance Mortgage Closing Costs and Your Home Loan Timeframe

There are two dirty words that refinancing homeowners hate to hear mention of, and they would be refinance mortgage closing costs and Private Mortgage Insurance, or PMI. Now, with PMI, the refinance borrower is charged a monthly insurance premium, which is solely for the benefit of the lender, so I can understand the frustration with that requirement for FHA loans and over 80 percent LTV conventional loans. Closing costs can be another source of frustration for borrowers because they can sometimes add up to a significant amount depending upon many factors.

The good news is that with closing costs, as long as you know (or anticipate) the amount of time you plan to be in your new home loan (timeframe), we can easily figure out the breakeven point for the mortgage closing costs. Once this is calculated, you can project your total benefit, which can really help to put closing costs into a new light, and potentially stop a refinancing homeowner from putting the brakes on a new mortgage that will reap good financial benefit for them.

For example, suppose you are looking to refinance your first mortgage with a current 6.25% interest rate and $175,000 balance and your second mortgage with a current 6.5% interest rate and $45,000 balance into one new 30 year fixed rate mortgage at 5.0%.

The monthly principle and interest (P&I) on your current 1st mortgage is $1,140 and the P&I on your second mortgage is $435 for a total monthly P&I of $1,575.

The closing costs for your new mortgage is $3,500, so your new total loan amount would be $223,500. At 5.0%, your new 30-year fixed rate mortgage monthly payment would be equal to $1,200.

So, your projected net monthly savings is $375 (1,575 minus 1,200).

To calculate your breakeven point for closing costs, simply divide the total closing costs by the monthly savings. In this example, the breakeven point is 9.33 months (3,500 divided by 375).

In this example, if you plan on staying in your new home loan for more than 10 months, it’s a good deal. Stay in even longer and it’s a great deal.

Here are the total net savings (including deduction for closing costs) for this scenario:

1 Year – $1,000
3 Years – $10,000
5 Years – $19,000
10 Years – $41,500
15 Years – $64,000
20 Years – $86,500
30 Years - $131,500

At first glance, Mr. refinancing homeowner might have scoffed at paying $3,500 for closing costs. If that homeowner just hung up the phone and screamed “rip-off!” (as many refinance shoppers are prone to do), he might well in fact be ripping himself off if he plans to stay in his home for more than a year. In fact, if he stays in his home for 5 years or more, he is throwing a huge amount of savings out the window for an unsubstantiated pre-conceived notion that refinance mortgage closing costs are a rip-off.

Once you get your quotes and calculate your breakeven point, the whole business of closing costs will be settled. If the numbers don’t work out for your timeframe, then you won’t get into a mortgage that is not in your best interest (You won’t feel like you’re missing out on the parade while refinance rates are at historic lows).

On the other hand, if the numbers show a significant benefit for your timeframe, then you won’t miss out on a financially smart deal, and you won’t feel the burden of closing costs.

Let’s face it, refinance closing costs are a requirement of refinancing your home (no-closing cost options actually have a cost in a higher interest rate). The key is to calculate your benefit and loan timeframe. You might even consider refinance closing costs as your best friend (why did you slap me?), after you get down to the bottom-line loan savings and long-term financial gain.

If you are considering a home mortgage refinance now and need some help, have questions, or need some competitive refinance 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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FHA Refinance and the Upfront Mortgage Insurance Premium (UFMIP)

The FHA refinance home loan program offers many benefits to homeowners that are refinancing a majority of the equity in their home, and also for those with low credit scores. You get qualified mortgage refinance rates at that near a person refinancing with a loan-to-value ratio (LTV) under 80 percent with an excellent credit score.

One of the major reasons that the HUD is able to insure the FHA refinance loans is through the Upfront Mortgage Insurance Premium (UFMIP). There is much confusion among home loan borrowers about the UFMIP, so I thought I’d try to explain it here.

The FHA UFMIP is an upfront charge for a refinance loan that is charged to maintain the FHA program. Currently, the UFMIP is equal to 1.75% of the borrower’s total loan amount. So, if you are refinancing $200,000 with all closing costs included, the UFMIP will be amount to $3,500 (200,000 times .0175). So, the total loan amount would be $203,500 because the UFMIP is added upfront to the total loan amount.

Is the UFMIP a closing cost?

Yes. It will likely be posted to the good faith estimate as a settlement charge, so yes, it is a closing cost.

Does the lender get this money as a profit?

No. The UFMIP goes to the HUD department.

Does the UFMIP count toward the qualifying LTV?

No. This is very important for those with high LTV scenarios. The UFMIP is not added to the total loan amount for LTV purposes, which is currently allowed at 97% LTV for a rate/term refinance and 85% for a cash-out refinance.

Should I include the UFMIP in my Breakeven Analysis?

Yes. Since it is really a closing cost, it should be included in your refinance breakeven analysis. For example, suppose you are refinancing $200,000, of which $2,500 are for closing costs and the required UFMIP is $3,500. Your total bottom-line monthly savings will be $225 with the refinance. So, your total real closing costs are $6,000 ($2,500 closing costs plus $3500 UFMIP).

The breakeven point in this example is 27 months. ($6,000 total costs divided by the $225 per month savings).

Now the good thing about knowing this information is that you can easily compare between a conventional loan quote and an FHA refinance quote. Get a quote and good faith estimate for the same qualifying interest rate for both conventional and FHA, and do your breakeven analysis. The numbers will tell the story.

I hope this helps!

If you are considering a home mortgage refinance now and need some help, have questions, or need some competitive refinance 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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Mortgage Refinance Rates Still Near 5.0 Percent

The steadiness of mortgage refinance rates over the past month or so has been a welcome change from the interest rate roller coaster ride experienced over the past couple of years. In fact, we are now near the historic low home loan rates of Spring 2009.

There seems to be a standstill at the moment as the unsettled economy is drawing investors into and out of the security of treasury bonds, maintaining the low yield in a tight range and keeping refinance mortgage rates a nice bargain.

Home values and credit scores continue to be the major determining factor for qualification into these great rates. FHA refinance home loans continue to offer low rates to those with credit scores as low as a 620 mid fico and you can have a loan-to-value (LTV) ratio up to 97 percent.

For those looking for conventional loans with no PMI, your home value will be critical. Don’t forget to include your closing costs into your total loan amount in calculating your qualifying LTV if you are not paying for closing costs out of pocket. You will need to be at an 80 percent LTV or lower to eliminate PMI.

The housing value picture is still muddied, but looks a whole heck of a lot better than it did even a few months ago. The latest home sales numbers have been rather positive and we have even experienced home values increasing in many markets…. Hip Hip Hooray!!

Now, before we pop the cork on the champagne, there are also some troubling housing market variables that lurk around the corner. There are apparently a huge number of distressed homes waiting to hit the sales market. Banks have been holding these foreclosed homes for various reasons, but they could soon hit the sales listings. This could be a big hit to an already unsettled outlook.

Not to mention the jobs picture. Unemployment numbers continue rise as corporations work to improve their balance sheets. This is also putting a damper on housing activity.

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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Are Your Refinancing Ducks in a Row?

Far too often in the home loan mortgage world, loan pre-qualifications and rate quotes are given out without solid numbers provided by the potential borrower. You know what they say … “Don’t let the facts get in the way of a Great New Home Refinance Loan”.

For those considering a home refinance in the near future, it is in your best interest to gather your pertinent information now, so that your potential new mortgage lender can give you solid pre-qualification program options and interest rates.

For instance, assume you are being pre-qualified based on a loan amount of $200,000 (current mortgage balance) with a $260,000 home value, $2,400/yr property taxes, $600/yr homeowner’s insurance, a 765 credit score, yearly gross income of $40,0000, and monthly household expenses of $200. You would qualify for an under 80 loan-to-value (LTV) refinance at the best current rates available with no private mortgage insurance (PMI) and no requirement to escrow for your property taxes and homeowner’s insurance. In a nutshell, you would pre-qualify for the best refinance deals.

Now let’s assume some of the information given by the borrower in the previous example was just a quick estimation of what he or she felt was accurate, but was not in line with the actual facts.

The home value was based on the purchase price two years ago, but a quick check of multiple online appraisal sites shows that a more likely value is in the $230,000 to $240,000 range. Suddenly, your refinance program options change dramatically as the LTV hurdles over 80 percent. The borrower is now looking at higher qualified interest rates and is required to escrow for taxes and insurance, plus has to pay a monthly PMI. The monthly payment could be several hundred dollars more per month than that of the original example.

Maybe the borrower’s income is not what they thought. Their base salary is $35,000, but they received a one-time yearly bonus of $5,000, so in fact, for loan qualification, the $35,000 figure must be used. Further more, say the borrower didn’t know that student loan payments were included in household expenses, and they amount to an additional $300 per month. Just these two miscalculated items change the borrower’s debt-to-income ratio to a point where the loan cannot be done.

We could go on and on, but I think you get the point … it’s extremely important to gather the most accurate information as possible in your refinance pre-qualification stage.

Also keep in mind that for most part, refinancing borrowers are not mortgage professionals. It is important to speak with a loan professional that can cover all aspects of your loan scenario with you. Mortgage guidelines and underwriting standards are changing all the time, and it’s in your best interest to pre-qualify with a professional for a solid consultation, before you commit into the loan process.

I know, it can be difficult to know whom to trust. Is the lender just out to get a commission or do they have my best interests at heart?

Just like with any other big-ticket product or service decision, you have to get a feel for the person you are working with. Request information about the company and the professional experience of the person you are speaking to if it is not offered up front. Also, request information regarding the lender’s loan process and deposit policy.

If you experience any high-pressured sales tactics, this may be a sign to move on to another lender.

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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Treasury Yields Down and Mortgage Spreads Up = Flat Refinance Rates

After the battle at the 4.0 percent mark of the 10 Year Treasury Yield on June 10, we have experienced a rather nice retreat by more than ¼ percent in the past couple weeks, yet you may have noticed that mortgage refinance rates have remained somewhat flat in the interim. That is because of the increase in the mortgage spread premium that investors and lenders are adding to the interest rates to make up for their perceived risk of inflation, housing values, and other pesky economic perils.

The good news is that although, the mortgage spread has gone up, refinance rates are still looking very good at present levels.

The bad news is that lender underwriting is getting even tougher and home appraisals continue to drift downward in many home markets. The hardest hit home value states continue to be Arizona, California, Florida, and Nevada.

That is why I continue to harp on home values and how important it is for refinancing homeowners to check among the multitude of free online home value checkers. Even though interest rates are still nice and pretty, it will do you no good if your quoted refinance home loan rate and program is pre-qualified based on a higher than realistic perception of the value of your home. Depending upon the mortgage program you are applying for, your loan rate could go up, monthly mortgage insurance can enter the equation, or your loan could be outright declined if a lower than expected home appraisal comes in.

Of course, most of us know there are no guarantees at what number a home appraisal will come in at, but, you can increase your odds of home value accuracy at the onset by doing a little online research. A good lender will also check value numbers for you before you apply for your refinance loan, but don’t count on it.

Many of you will benefit significantly by refinancing into current low mortgage rates, but the accuracy of your pre-qualified numbers are very important. Accurate information for income, credit and home value at application will go a long way toward getting your new home mortgage closed efficiently, while avoiding potential headaches during the loan process.

Today, the FOMC begins its two-day meeting and mortgage industry is looking for some clarity on its economic outlook. As far as mortgage refinance rates are concerned, look for anything in their upcoming announcements relating to shifts to their November 4 announced purchase plan for mortgages, agency debt, and treasuries. Also look for any insight into how long it will keep current overnight lending rates intact.

The FOMC meeting announcements will result in mortgage refinance rates either going up, going down, or staying flat. Now, if that isn’t a wishy-washy statement, I don’t know what one is! In reality, barring a drastic announcement either restricting or bumping-up their mortgage related purchase plans, I would suspect things to remain even-keel on their announcement.

On the home value front, May existing home sales rose less than expected. Home sales rose 2.4 percent to a seasonally adjusted annual pace of 4.77 million, up from a downwardly revised rate of 4.66 million in April. About one in three homes sold last month was a foreclosure or distressed sale, dragging down the median price to $173,000 -- 16.8 percent below a year ago. Falling prices coupled with new rules for property appraisers have caused many transactions to fall apart or be delayed.

Yes, that pesky home value issue still remains a problem for many that could benefit with current low mortgage rates.

Rate/Term FHA loans continue to be offered at up to 97 percent LTV with conventional type interest rates, and can be a big help to those refinancing in hard-hit home value areas. For those that have a solid qualifying LTV refinance scenario under 80 percent with good to excellent credit, the mortgage rate world is still your oyster.

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

Home Price Drop Effect on Refinancing Your Home

Standard & Poor's/Case-Shiller home price index released on Tuesday reported that prices of U.S. single-family homes plunged 18.5 percent in December from a year earlier as the monthly pace accelerated. There seems to be no area immune from the downward trend. As to add insult to injury, since the housing market peak in the second quarter of 2006, home prices have plummeted 26.7 percent, on average.

So how does this effect the refinancing of my home? Well, for some, it will have little or no effect, but for others, it can mean the difference between a great rate and a good rate, or even downright non-benefit for the homeowner.

The key number is 80 percent. That is, for those refinancing 80 percent or less of the value of their home, they will be eligible for current low advertised refinance rates. But, as you move up above the 80 percent ranks, interest rates will move upward and mortgage insurance will be added to your new monthly payment. Depending upon the loan scenario, this can create a no-win end game for those financing well over 80 percent of their home’s value.

But hey, this is the time to be checking on refinancing if you are looking for low rates. Rates are still near all-time lows and you may stand to receive substantial benefits by refinancing now. If you have a good idea on the value of your home and the numbers show that you would be refinancing less than the 80 percent key value, it is definitely worth a look.

Yes, credit scores also play an important role for the great offered rates. Those with credit scores above 720, coupled with a loan-to-value ratio under 80 percent are in the greatest position to close on current low refinance rates.

So, what about us refinancing over 80 percent of the value of our home, with sub 720 scores to boot? Glad you asked.

FHA refinance loans are definitely the way to go for high LTV loan scenarios and for those with credit scores in the 600 to 720 fico range. The qualified rates are almost as good as current prime conventional loan rates for those under 80 LTV and with great credit. So there is a place for most homeowners to cash-in on low refinance rates.

Again, home value is key. Have a good idea about the value of your home before getting a quote. If you are below 80 LTV for your loan scenario, then you are in good shape. Above an 80 LTV, then you will want to get a comparison between prime conventional home loan rates and FHA refinance rates.

May the Mortgage Refinance Rates be with You!

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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!

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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!

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