yroth | Yale Roth M.A., M.Ed

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How Is Private Mortgage Insurance PMI Calculated?

February 20th, 2012 |

Author: yroth

How Is PMI Calculated?

Private Mortgage Insurance, also called PMI, is not the same for all homeowners or first time home buyers.

The private mortgage insurance PMI is required if the mortgage loan to value ratio is above 80%.

So if you’re refinancing your existing mortgage loan and the appraised home value comes in low, the loan to value ratio may go above 80% – now you’re required to pay PMI.

If you’re purchasing a new home and you put down less than 20%, you’re going to have to pay private mortgage insurance PMI.

But the private mortgage insurance premium is different according to your loan to value ratio and the type of mortgage loan you take out.

The lower the loan to value ratio (but not below 80%) and the shorter the mortgage loan term, the lower the private mortgage insurance premium.

For example, the loan to value ratio is tiered or bracketed.

What I mean is if your loan to value ratio falls between 80% and 85%, the private mortgage insurance rate is different (or lower) than if your loan to value ratio falls between the 85 to 90% range.

Specifically, let’s say your mortgage loan to value ratio is 84%.

Let’s also say that you’re applying for a 30 year fixed mortgage.

The PMI rate you’ll pay is .32 x your loan amount and divide by 12, as there are 12 months in the year.

So if the mortgage loan amount is $100,000, multiply the $100,000 x .0032 = $320/yr divide by 12 and get $26/month.

Once the homeowner has at least 20% equity in the home and once they’ve paid at least 2 years worth of private mortgage insurance premiums can they request from the mortgage lender to remove PMI.

Here’a a handy PMI calculator for you!

When Are Mortgage Loan Rates Going To Rise?

February 18th, 2012 |

Author: yroth

When Are Mortgage Loan Rates Going To Rise?

This is a great question – it seems it’s the $64,000 question and I get it a lot from homeowners and first time home buyers.

Mortgage loan rates are very low right now.

Mortgage refinance business is still very strong as most people who can qualify for refinancing are taking advantage of the low home loan rates and refinancing their existing mortgage loans.

They are either dropping their mortgage rate and mortgage payment and staying with the same home loan type or reducing their mortgage loan term to either a 20 year fixed, 15 year fixed or 10 year fixed mortgage. All smart decisions.

But when are mortgage rates going to rise?

Mortgage loan rates will begin to rise once we begin to see sustained improvement in the US economy.

Remember, inflation is what causes mortgage rates to rise.

As long as there are no signs of inflation in the US economy, mortgage loan rates will remain low.

There are certain economic indicators that are measured each week that tell us how our economy is doing and whether inflation is rising.

Consumer Price Index CPI and Producer Price Index PPI, the monthly jobs report, the Federal Reserve Open Market Committee minutes or comments that a particular Fed governor may make regarding inflation or the US economy, can all impact mortgage loan rates.

But it’s sustained improvement in the US economy that will lead mortgage loan rates to rise.

It’s just a matter of time before we begin to see this.

So if you’re unsure whether it makes sense to refinance your home loan or you may be thinking about buying a new home, now is an ideal time as mortgage loan rates are very low.

How Does The BiWeekly Mortgage Plan Work?

February 16th, 2012 |

Author: yroth

How Does The BiWeekly Mortgage Plan Work?

The biweekly mortgage plan is a great way to prepay your mortgage loan down.

Essentially, what the biweekly mortgage plan does is autodebit – using electronic funds transfer EFT – half of the principal and interest portion of the mortgage loan payment.

There are 26 autodebits made through out the course of the year.

There are 2 months out of the calender year where there are 3 “triple debits”.

So, let’s say that the principal and interest portion of your mortgage loan payment is $1000.

Every other week – or every 14 days - your checking (or savings account) will be debited $500.

Now, when the autodebit takes place, the 50% portion of your mortgage payment isn’t submitted directly to the mortgage lender. Many people, including myself, thought otherwise.

If the 50% portion of the mortgage payment was submitted, the mortgage company would return as “insufficient,” as it’s only 50% of the total mortgage payment due.

What the biweekly mortgage plan does is take the 50% autodebit and put it in an escrow account.

Once the full 100% mortgage loan principal and interest portion has been collected, the mortgage payment is made.

There are 2 months out of the year where your account will be debited a total of $1500 – as the three triple debits amount to $1500 ($500 x 3).

That “extra” $500 is applied directly to mortgage principal reduction.

Given this, what is the biweekly mortgage plan accomplishing?

You see that it’s making a mortgage payment every month, just like you would if you paid it on your own once a month.

The difference is that it’s is collecting 2 additional 50% mortgage payments during the year and applying that directly to principal reduction.

It’s very convenient and works like a forced savings plan.

There’s usually a fee to set up the biweekly mortgage plan.

The set up fees range from $195 to $395.

In addition, there may be an electronic fee transfer charged for each debit.

The EFT ranges from $2.95 to $3.95 per debit.

Can you do what the biweekly mortgage plan does on your own? Absolutely.

If you were to make one extra mortgage payment applied to mortgage principal reduction each year, you would accomplish the same result as the biweekly mortgage plan – which will reduce your mortgage term, lower your mortgage net effective interest rate and save you a ton of money in mortgage loan interest.

The main benefit of the biweekly mortgage plan is that it is automatic. Set it and forget it.

A lot of people will say they will apply the one extra mortgage payment to principal reduction, but they don’t. They end up getting “sidetracked” or forget to.

Although it costs more, you know that with the biweekly mortgage plan, the result is guaranteed.

Why Prepaying Your Mortgage Loan Is A Good Alternative To Refinancing

February 15th, 2012 |

Author: yroth

prepay mortgage loan instead of refinance to save money

Why Prepaying Your Mortgage Loan Is A Good Alternative To Refinancing

One of the best ways to lower your current mortgage rate as well as reduce your current mortgage loan term is by prepaying the mortgage.

What I mean by prepaying the mortgage is that you apply extra money each month to be applied to lowering the principal balance of the mortgage loan.

Who can this help?

Let’s start with homeowners who want to refinance into a lower mortgage rate but are unable.

Either they don’t qualify for a new mortgage loan because they owe more than their home is worth and they don’t qualify for the HARP home loan program or their credit is poor or they’re self employed and don’t report enough income to qualify for a new mortgage loan.

Or, let’s say their attempting to refinance their home loan and the home appraisal comes in low.

Now they’re faced with the prospect of paying private mortgage insurance PMI or paying their mortgage loan down to get below the 80% loan to value threshold to avoid paying the PMI.

Here are the benefits of preapying on your existing mortgage loan:

1. You lower you net effective mortgage rate.

Let’s say your current mortgage rate is 5.25%. If you prepay that mortgage loan, your net effective mortgage interest rate will drop because your cutting into the mortgage term.

The degree of the drop in net effective mortgage rate will depend on how much you prepay and the existing term of the mortgage loan.

2. You pay you mortgage loan off sooner.

This is big as you’re taking years off the back end of the mortgage loan.

So let’s say your current mortgage loan principal and interest payment is $1000 per month.

If by prepaying against your mortgage loan, you eliminate 7 years off the mortgage loan term - that’s 84 payments (7 x 12 = 84).

84 payments x $1000 = $84,000. That’s nothing to sneeze at!

3. You’re saving money in mortgage interest.

By prepaying the existing mortgage loan, you’re lowering the net effective mortgage interest rate, reducing the mortgage loan term, and saving money in total mortgage interest you’ll pay on the mortgage loan.

So don’t despair if you’re unable to refinance – for whatever reason.

If you prepay your existing mortgage loan, you’ll be able to accomplish some of the same things that you set out to accomplish by attempting refinancing your existing mortgage loan in the first place!

Check out my biweekly mortgage payment calculator to see how much you’ll save!

Are Home Loan Rates Higher For A Mortgage Refinance Or New Home Purchase?

February 13th, 2012 |

Author: yroth

are home loan rates for mortgage refinance higher than for new purchase mortgage

Are Home Loan Rates Higher For A Mortgage Refinance Or New Home Purchase?

Every now and again, I’ll get this home loan question: “Are Home Loan Rates Higher For A Mortgage Refinance Or A New Home Purchase?”

Home loan rates are priced a bit differently for a mortgage loan refinance – but only for a cash out refinance.

(A cash out refinance is when a homeowner borrows from their home’s equity and takes out additional cash over and above what is owed on the mortgage loan balance.)

For example, one of the main factors that effect home loan rates – irrespective of whether the transaction is a mortgage loan refinance or new home purchase – is the loan to value ratio.

That is to say, if there is a lot of equity in the property, then the home loan rate will be lower or less expensive.

So, the home loan rate isn’t higher for a refinance or purchase if there is a good deal of equity in the home – say more than 40%.

However, once the loan to value ratio starts to go above 60%, then the transaction type can make the mortgage loan rate higher – but only if the transaction is a cash out refinance.

The home loan rates for a no cash out refinance, also called a rate and term refinance, and a home purchase mortgage are the same.

In conclusion, home loan rates are not higher for a mortgage loan refinance if the loan to value ratio is below 60%.

The home loan transaction types are priced the same.

Once the loan to value ratio goes over 60%, then the home loan rate for a cash out refinance may be higher than a no cash out refinance or new home purchase mortgage.

Why A 5/1 ARM May Be A Smarter Mortgage Loan Choice Than A 10 Year Fixed Mortgage

February 12th, 2012 |

Author: yroth

I saw a friend of mine last week who asked me whether it made sense for him to refinance since mortgage home loan rates are really low.

He explained that he owed about 175,000 on his existing mortgage loan. He was about 10 years into it and had 10 years to go before it would be paid off. It originally was a 20 year fixed mortgage.

His current mortgage rate is 5.25%.

He told me that someone had told him that if he refinanced into a 5/1 ARM - also known as an adjustable rate mortgage – and paid what he’s currently paying, that the 5/1 ARM would pay off sooner than the 10 years.

So I went to my biweekly payment calculator and did the comparison.

The 5/1 ARM performed the way he suggested.

If he refinanced into a 5/1 ARM at 2.875%, which is a no lender fee mortgage rate, and paid what he’s currently paying on his existing 20 year mortgage loan at 5.25, the 5/1 would pay off about a year earlier.

For example, the current mortgage loan payment is $1850 per month. The mortgage payment on the 5/1 ARM at 2.875% is $726 per month. This is based on a mortgage loan amount of $175,000.

That’s a difference of $1124 per month.

If he applied the $1124 per month to the 5/1 ARM mortgage payment, even though the 5/1 amortizes over a 30 year period, the 5/1 ARM will pay off in 8.67 years. The total cost of the loan would be $197,721.

On the 10 year fixed mortgage loan, on the other hand, at a 3% mortgage rate, the principal and interest payment is $1689 per month.

If he prepaid $160 per month towards lowering the principal of the mortgage loan, maintaining the mortgage payment at $1850, the mortgage loan would pay off in 8.3 years. The total cost of the mortgage loan would be $197,742.

Now here’s the rub.

If the mortgage rate on the 5/1 ARM stayed at 2.875 or lower for the full 8.7 year term, then the 5/1 ARM would make sense.

However, that mortgage rate and mortgage payment might change after 5 years.

Theoretically, the mortgage rate on the 5/1 ARM could increase 5% over the 2.875% in the 6th year.

This is where the difference is.

All things being equal, the 5/1 ARM – going against conventional wisdom – would save my friend money compared to him doing nothing and staying with his 20 year fixed mortgage loan at 5.25%.

Compared to the 10 year fixed mortgage loan at 3%, the 5/1 ARM with the additional prepayments applied to mortgage principal performs well.

However, the fact that the mortgage rate can change after the 5th year and can potentially eat into his savings, makes the 10 year fixed mortgage loan the safer and less expensive option.

Here’s Some Bad Mortgage Loan Advice

February 9th, 2012 |

Author: yroth

I was talking to a homeowner today – nice guy.

He was shopping around wanting to take advantage of the low mortgage rates.

He was telling me that he had spoken to a mortgage broker who advised that he go into a 3/1 ARM - also known as the adjustable rate mortgage.

I asked him how long he planned on keeping the home and he told me that he planned on keeping it.

I said, “Did you tell the other mortgage broker that and he told you the 3/1 ARM was the right mortgage loan for you?”

He said, “yes.”

I couldn’t believe that someone would recommend a 3/1 ARM when the homeowner wanted to keep the home for the long haul.

With the mortgage rates on fixed mortgage loans so low, why not go into a 30 year fixed home loan while he can fix it in the 3-4% range.

Doesn’t that make more sense?

The guy is keeping the home for the long haul – say 10 years.

Even though the rate and mortgage payment on the 3/1 ARM are lower, in 5 years the mortgage payment and rate could be higher.

I’d rather sit on a 30 year fixed mortgage loan at a slightly higher rate and payment. No worries about any future increases.

Don’t you agree?

My Top 3 Mortgage Loan Types

February 8th, 2012 |

Author: yroth

Mortgage rates are remarkably low right now. Unless you’ve been sleeping in a cave, you know this.

On some mortgage loan types, the mortgage loan rates are REALLY, REALLY low.

Given how remarkably low the mortgage rates currently are, I’m going to list my top 3 mortgage loan types.

Coming in at number 1.

#1. The 10 Year Fixed Mortgage Loan

This is just an amazing mortgage loan. The mortgage rates for the 10 year fixed mortgage are remarkably low.

In addition, you can get a really low mortgage rate with little to no closing costs, as the lender will give you a credit to cover the third party closing fees.

On the 10 year fixed, you’ll pay less in mortgage interest and the mortgage loan will be paid off in 10 years! Own your home free and clear – just in time for retirement. Can’t beat that!

#2 The 15 Year Fixed Mortgage Loan

This is also a great mortgage loan, only second to the 10 year fixed mortgage.

If you can’t swing the mortgage payment for the 10 year fixed mortgage, then the 15 year is a great alternative. It’s an equity builder and just all around great performer.

#3 The 30 Year Fixed Mortgage Loan

I like the 30 year fixed mortgage right now because the mortgage rates for this mortgage loan type are also amazingly low.

In addition, there is no prepayment penalty with the 30 year fixed so you have the flexibility to prepay on the mortgage loan to reduce the mortgage term and lower the amount of mortgage interest you’ll pay over the life of the loan.

So there you have it: my top 3 Mortgage Loans: The 10 Year Fixed Mortgage, The 15 Year Fixed Mortgage and The 30 Year Fixed Mortgage.

Is A “No Cost” Mortgage Loan A Scam?

February 7th, 2012 |

Author: yroth

Homeowners and first time home buyers will ask me whether I offer no cost mortgage loans and whether they are a scam.

The answer to the scam part of the question is “No, they’re not a scam.”

One thing that you need to keep in mind when you’re either buying a new home or refinancing your existing mortgage loan is that there are going to be closing costs associated with the transaction.

For example, the mortgage lender is going to want to be paid for their service and product.

A home appraisal is needed to determine the home’s value. The home appraiser charges for their work.

The title will have to be searched and a new title policy issued. That costs money.

Finally, the county and state that the home is located in will charge a recording fee to record the mortgage and in some states, taxes are paid on the new mortgage loan amount.

So, with all these fees, how is it that you see advertised “no cost” mortgage loans?

It’s because the lender is offering a higher mortgage rate. It’s out of the revenue generated through the higher mortgage rate that the mortgage lender, acting as an interested third party, will pay your title and government recording fees and/or taxes.

This is definitely not a scam.

Now some people will say, “i’m paying for it one way or the other.”

And in a way, that’s true.

However, that doesn’t mean that there isn’t benefit to you to take a higher mortgage rate and have the mortgage lender pay your mortgage closing costs.

For example, if your goal is to lower your mortgage rate and lower your monthly mortgage payment, you still can accomplish that by taking a higher mortgage rate and have the mortgage lender pay your closing costs.

If you’re buying a new home and you’re s first time home buyer who has limited cash to pay mortgage closing costs, then having the mortgage lender pay the mortgage costs can make sense.

If you’re refinancing your existing mortgage loan and you can drop your monthly payment by, say $150 per month, and it doesn’t cost you anything or it costs you very little, then the “no cost” mortgage loan can make sense.

In conclusion, the ‘no cost” mortgage loan is not a scam and can make a lot of sense to a lot of homeowners or first time home buyers.

What Happens At A Mortgage Refinance Closing?

February 5th, 2012 |

Author: yroth

What Happens At The Mortgage Refinance Closing?

For first time home buyers or homeowners who haven’t refinanced their existing mortgage loan, here’s what a mortgage loan refinance closing is like.

The homeowner, together with their spouse, will go to the title company office that did the title work for the refinance loan. That’s where the mortgage refinance closing will take place.

The mortgage lender will order the title work unless the homeowner has a specific title company they want to use for the mortgage refinance closing.

Sometimes, certain home loan lenders will allow you to close in your home, and have a notary republic come to your home with the mortgage loan paperwork.

At the conference table – and it’s usually a conference table because there are a lot of papers to be signed – you’ll sit with a title officer.

You and your spouse will have to sign a lot of mortgage loan paperwork.

Specifically, you’ll review and sign the HUD-1 Settlement Statement, which is a breakdown of the associated mortgage refinance closing costs.

The HUD-1 Settlement Statement will also show whether you’re going to get cash back or whether you’ll need to bring money to the mortgage loan closing.

You’ll also have to sign the Mortgage, which is the collateral instrument that says if you default on the mortgage loan, the lender can foreclose on the property.

The Mortgage document is about 10 pages long.

You’ll also have to sign the Note – also called the Promissory Note.

The Note will outline the terms of the mortgage loan.

That is, the Promissory Note will show how much you’re borrowing, the mortgage loan interest rate and principal and interest mortgage payment.

It’ll also show the mortgage term and when the loan will be paid in full.

In addition to signing the HUD-1 Settlement Statement, Mortgage, and Promissory Note, there will be miscellaneous mortgage loan disclosures that the mortgage lender will want you to sign.

The title officer, who is managing the closing, should explain what all the mortgage papers mean.

If you get a copy of the HUD-1 Settlement Statement before you go to closing – and you should as you’ll see all the fees and money coming to or from you upfront, the mortgage refinance closing should go smoothly.

Mortgage refinance closings usually take about 45 minutes, depending on how many questions you have at closing and whether everything is what you expected it to be when you mortgage loan was originated.

Yale Roth M.A., M.Ed

Author Archive

How Is Private Mortgage Insurance PMI Calculated?

Related Posts:

When Are Mortgage Loan Rates Going To Rise?

Related Posts:

How Does The BiWeekly Mortgage Plan Work?

Related Posts:

Why Prepaying Your Mortgage Loan Is A Good Alternative To Refinancing

Related Posts:

Are Home Loan Rates Higher For A Mortgage Refinance Or New Home Purchase?

Related Posts:

Why A 5/1 ARM May Be A Smarter Mortgage Loan Choice Than A 10 Year Fixed Mortgage

Related Posts:

Here’s Some Bad Mortgage Loan Advice

Related Posts:

My Top 3 Mortgage Loan Types

Related Posts:

Is A “No Cost” Mortgage Loan A Scam?

Related Posts:

What Happens At A Mortgage Refinance Closing?

Related Posts: