Posted: March 29th, 2010 | Author: Joe | Filed under: Real Estate, spending | Tags: Mortgages, Refinancing, Saving Money, Tips | No Comments »
A while ago, my wife and I were looking to sell our house and upgrade to a larger home. Our family was outgrowing our starter home. We had made some pretty dumb decisions when we bought that home. We had no idea what we were doing. We didn’t shop around for the best mortgage, we simply used the mortgage broker recommended by the real estate agent.
Things were different when we bought our next (and current) home. I wrote about some of the things I learned the first time around in 4 Tips For Applying For a Mortgage.
Another dumb thing we did was refinancing about a year into owning the home. We had just had our 1st baby, and had a tough time making ends meet so when the broker called and said we could cut our monthly payment by “as much as $50!”, well we jumped on that deal.
Of course, that $50 set us back a year on paying off the loan, not to mention all the extra financing involved because we rolled the refinancing cost into the new loan.
That’s not to say that refinancing your home is a bad idea. It just depends on the circumstances. A year into the loan, with not much lowering of the rate (we shaved about 0.25% off our rate) doesn’t make much sense, unless it’s trading an ARM for a fixed.
Well, back when I was shopping around for the best mortgage rate I contacted lendingtree.com. I ended up using a local bank instead, but lending tree still sends me their newsletter from time to time.
This week’s newsletter had a link to their article 4 steps to evaluate your current mortgage loan.
I thought I’d share some thoughts on their list, but feel free to read the full article on your own.
Here’s the gist of their list of when it makes sense to refinance your mortgage.
- You have an adjustable-rate mortgage (ARM)
If you have an ARM, and the terms don’t specify a prepayment penalty then it may make sense to refinance to a fixed rate loan. The prepayment penalty may be costly if you refinance, since you are in essence making one, big prepayment on the entire loan itself.
- Your current mortgage rate is considerably higher than current mortgage rates.
I interpret “considerable” to be about a percentage point or more, also known as 100 basis points or more. I just don’t think it makes good sense to lengthen your loan (which refinancing does) to save less than a percentage point. You’re better off making an extra payment or more every year. You’ll save more interest AND own your home free-and-clear sooner.
- You expect to be living in your home for another 7 years or more.
The Lending Tree article mentions doing the math to make sure you stay in the house past the point at which you break even and make up the cost of the refinance, but there are other market conditions involved. If you stay to the break even point, and then decide to sell you may still lose out if the market hasn’t risen. 7 years may not be enough time for your home to appreciate, but it seems like a point at which the odds are in your favor.
Lastly, it doesn’t always make sense to refinance your mortgage. For example, I don’t think it makes sense to refinance my mortgage because the change in rate isn’t enough and I have my own plan to pay the mortgage off sooner anyway, which will save me more in interest payments over the long run.
Whether or not you will really save money by refinancing your mortgage is more than just using a mortgage calculator to see what your new monthly payment is. You need to think big picture too, as I laid out in my explanation of why I’m not refinance my mortgage.
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Posted: February 2nd, 2010 | Author: Joe | Filed under: Economy, Real Estate | Tags: Economy, foreclosure, Housing, Mortgages, news, Real Estate | No Comments »
According to this article from the AP, new home sales fell 7.6% last month.
The Commerce Department said December sales fell to a seasonally adjusted annual rate of 342,000 from an upwardly revised November pace of 370,000. Economists surveyed by Thomson Reuters had forecast a pace of 370,000 for December.
It’s mildly surprising given that the home buyer tax credit was still in effect at that time, but it could be due to a lag. It usually takes about 2-3 months to finalize the purchase of a home from the initial offer to the closing date and it could be that new home buyers at stopped looking by early November, when the tax credit was originally set to expire. If this is true, then we could expect to see a jump in new home sales in the January/February time frame.
I suspect the big reason however is that unemployment remains near historically high levels, and people simply don’t have or cannot plan to have the required, steady income needed to be able to afford a home.
The article never really mentions or even speculates about a reason for the ‘unexpected’ drop.
:-/
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Posted: January 17th, 2010 | Author: Joe | Filed under: Debt, Economy, Real Estate | Tags: Adjustable Rate Mortgages, ARMs, Economy, Mortgage Rates, Mortgages, news, Real Estate | 1 Comment »
It seems like only yesterday that we were hearing about Option ARM Mortgage rates resetting, and that holders of those loans were unable to refinance because their house was worth less than the mortgage…. Oh, wait… it was yesterday. 
Well, even so, things appear to be confusing in the housing market and mortgage industry still.
According to a recent Reuters article, the rise in mortgage applications the 1st week of this year is a reflection on the demand for refinancing loans. Demand for mortgages for new purchases only rose marginally.
According to the Mortgage Bankers Association, the index of mortgage applications (both purchase and refinance mortgages) was up 14.3%, though the index was less than half of what it was a year ago. And the 4-week moving average of mortgage applications was down 6.4%.
The article quotes Bob Walters, chief economist at Quicken Loans as stating:
“What makes the (applications) increase interesting is that nothing exceptional occurred to prompt people to return to the market,”
But I’m wondering if it isn’t the threat of those option and interest only ARMs resetting staring people in the face. But, I’m only a blogger, what do I know?
Another factor that ties in with the ARM reset is the anticipated rise in mortgage rates when the Federal Reserve stops buying mortgage-related securities at the end of March. Part of the purpose of this program was to bring rates down and keep them down to allow the market to at least stabilize, if not start to see some growth.
Things look to stay rough for the time being though. The Mortgage Bankers Association forecasts that mortgage originations will drop a further 40% in 2010, to the lowest level in a decade. And the Yale University economist Robert Shiller has said that he expects housing prices in the U.S. to continue falling in the next few months.
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Posted: July 16th, 2009 | Author: Joe | Filed under: Investing, Real Estate | Tags: foreclosure | No Comments »
To say that this is a buyer’s market is an understatement to be sure, but that doesn’t mean it’s a no brainer. While there are an unprecedented number of homeowners walking away from their mortgage, creating a record number of foreclosures, it’s still easy to make costly mistakes. Here are some tips to ease the process.
1. Know where to look.
Start without even leaving your home. Check out websites like RealtyTrac.com or ForeclosurePoint.com. These sites allow you to find listings of houses in foreclosure.
2. Know who to buy from.
In short, a bank. Buying a foreclosed home at auction requires you to pay cash, and you don’t even get the luxury of inspecting the property first. Contrast this with a bank owned foreclosure, where any liens have been cleared and you do get to inspect the property first, and you’ll see which is the better option.
3. Hire a contractor.
Foreclosed homes were either owned by people who didn’t care about tending to the property, or people who did not leave on their own terms. This often leads to vandalization and disrepair. Bringing a contractor to inspect the property before you buy, eliminates the possibility that you will underestimate the cost of repairs.
4. Aim low.
There’s a glut of foreclosed homes on the market the likes of which are rarely seen. This means banks are more likely to accept a lower price, just to be rid of the house. Start 20% below the market value, and be prepared to haggle.
5. Be patient.
While the glut of foreclosures means you can score a big discount on the price, it also means the bank has a lot of homes to process. This means it will likely take some time to finish the deal. Be ready to wait.
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