Dennis' Mortgage Blog

Question of the week:  Last week you information for home owners thinking about refinancing and if it makes sense.  I don’t think I have enough equity to refinance without mortgage insurance, what options do I have?

Answer:  What is your objective in refinancing, to lower your monthly payment or to not have mortgage insurance?  With rates as low as they are today we have many clients able to save hundreds of dollars every month using either FHA or conventional mortgages with mortgage insurance.  It is important to focus on your objective, reduce your monthly mortgage payment, and get past the point that you may or may not have mortgage insurance if you refinance.  If we speak and I tell you that you can reduce your mortgage payment from $2100 per month to $1885 per month but you would have mortgage insurance would you do it?  Don’t let mortgage insurance stand in the way of saving 10% per month and $2600 per year.

What if you do not have enough equity to refinance and save money using an FHA mortgage, or do not have enough equity to obtain a conventional mortgage and your loan is not eligible for a Making Home Affordable refinance (discussed in my September 9^th Weekly Rate & Market Update) then you may want to consider a “cash-in” refinance.

Most people are familiar with a cash-out refinance where you pull equity out of your property and your new loan balance is greater than you current mortgage balance.  A cash-in refinance is the opposite, instead of getting cash out of your property and reducing your equity, you put cash into your property, increase your equity, lower your loan balance and become eligible for a refinance to lower your monthly mortgage payment.

What is the point of a refinance where you have to bring money in to pay down your current mortgage just to lower your mortgage payment? Doesn’t it defeat the purpose of saving money if you have to spend thousands, or tens of thousands, of dollars to save the money?

Maybe, maybe not.

My mantra for the past several decades of consulting with families on their financial situation and how their mortgage and debt fit into their overall financial abilities and strategies has been: Do the math.

Does a cash in refinance make sense for you? Do the math.  If you need to put in $10,000 to lower your mortgage balance so you can save $500 per month does it make sense?  $10,000 divided by $500 per month savings is 20 months, that is your breakeven point when you have recouped your $10,000 investment in your refinance and begin to save money on from the transaction.  Are you going to be in the home for five years, ten years, fifteen years? Then a cash-in refinance makes sense.

Our company has been successful with many home owners the past few years who have funded cash-in refinances.  They have been able to significantly lower their interest rates, lower their monthly mortgage payments and in many instances significantly reduce the time remaining on their mortgage.

For a more detailed look at a cash-in refinance click on the link below for an example I have put together for a home owner with a home valued at $400,000 who funded a $400,000 mortgage in January 2009 at 5.375%.  Does a cash-in refinance make sense for this home owner?  Depends on their objectives, how long they will be in the home and other factors.  Click here for the analysis and with my commentary explaining the options.  (http://mcedge.tv/16a5l8)

Have a question?  Ask me!

Blog Posts This Week:

Beware of Greeks Getting Gifts  A look at what is happening in Greece and Europe and how it impacts U.S. mortgage rates and stock prices

Mid-Week Market Update  A YouTube look at mortgage and stock charts on Wednesday

Jobs  Juxtaposing the death of Steve Jobs a tremendous jobs creator with the Occupy Wall Street movement and job creation in the U.S.

Rates spent the week climbing after opening Monday lower than Friday’s close.  Working off of rumors in Greece and grasping to any somewhat non-negative news in our economy, plus the Twist from the Fed guaranteeing profits for long term bond holders, investors bought stocks and sold bonds.  As I mentioned on my blog post the day before the Fed announced the Twist, historically when the Fed announces policy to lower interest rates the reverse is usually the result. 

The chart below is a look at the Fannie Mae Mortgage Backed Securities (MBS) prices for the past thirty days.  Green is good, it means MBS prices are going up and therefore rates are going down.  Red is not good, it means MBS prices are going down and rates are going up.  As you can see on September 21^st MBS prices “crashed up” as discussed in that week’s update.  Following the immediate rally MBS prices dropped, and then rose again last week as the financial world worried about Greece imploding.  Despite Greece announcing it would not make its fiscal targets the markets have been reacting as if Greece is fine—mainly because European finance ministers have made all the right noise about protecting European banks.  As you can see on the chart the investors have been selling MBS to the point that prices have dropped back down to pre-Twist levels. 

The ever important employment numbers for September were released today.  The economy added 103,000 jobs according to the Labor Department, this includes 45,000 Verizon workers who went back to work after being on strike.  Included in the announcement was an upward revision of 57,000 new jobs to August’s job numbers from the initial release of zero jobs added.  Excluding the striking Verizon workers going back to their jobs that is 115,000 new jobs in two months.  The economy needs to add approximately 125,000 jobs each month just to keep up with population growth.

Rates for Friday October 7, 2011: FHA rates stay on their rate levels at 3.75% but the credits have diminished with the market change.  Conforming and high-balance conforming jump up this week; the high-balance rate climbing the most in one weeks since the end of June to beginning of July.  Volatility is the word to describe the market and a dangerous time to float, if you have your number get in your application and lock your rate.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.875%             Up 0.125%

30 year high-balance conforming           4.125%             Up 0.375%

30 year FHA*                                                   3.75%               Reduced credits

30 year FHA high-balance*                   3.75%               Reduced credits

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Current rates include credit towards closing costs, call for quote on rate and credit.

Steve Jobs has been properly eulogized throughout the world and I dare not think my words can express his contributions any more than those who have already said their piece.  My personal thoughts the other morning though were his impact on so many areas from the obvious of computers and software, to not only how we listen to music but how it is distributed, to how we work, to how we get our entertainment, even to fashion and art with his designs for his products that created their own métier other designers followed.  He has rightly been called our generations Thomas Edison, I would say he was our Leonardo Da Vinci as well.

On a personal note, thanks to those who responded with encouraging words for our daughter’s try-out for The Nutcracker, they worked as she has been cast in the scene she wanted.  The power of positive thought and support, use it!

Have a great week,

Dennis