Consolidation Loan | Yale Roth M.A., M.Ed

Archive for the ‘Consolidation Loan’ Category

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.

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.

5 Mortgage Loan Types That May Help You Get What You Want

January 31st, 2012 |

Author: yroth

There used to be a whole myriad of mortgage loan types available to the consumer and first time home buyer – as long as they qualified. For many, qualifying for the mortgage loan wasn’t difficult.

Times have changed.

Here are the 5 mortgage loan types that are now available to homeowners and first time home buyers.

1. Conventional Mortgage Loan.

This is a mortgage loan that is less than $417,000 and is sold to Fannie Mae or Freddie Mac.

To qualify for this mortgage loan, the homeowner needs credit above 620, at least 5% equity in the home and total monthly installment debt not to exceed 50%.

Pros: Low rates, all mortgage loan types (i.e. fixed rate as well as adjustable rate mortgages.)

Cons: Homeowners have to meet Fannie Mae, Freddie Mac and the mortgage lenders’ underwriting guidelines.

2. FHA Mortgage Loan.

FHA, which stands for the Federal Housing Administration, isn’t just for first time home buyers.

With a FHA mortgage loan all you need is 3.5% equity in the home for a new home purchase or rate and term refinance, also called a no cash out refinance. Homeowners can also take cash out of their home up to 85% of the value of the home.

Pros: Low rates, full range of mortgage loan products, only need 3.5% equity in the home for a home purchase or a no cash out refi.

Cons: High monthly mortgage insurance premium that has to stay on the mortgage loan for 5 years and 22% equity in the home. The MIP goes on no matter the loan to value ratio.

3 VA Mortgage Loan

This mortgage loan is for Veterans of the Armed Services and stands for the Veterans Administration – not the state of Virgina!

Pros: low rates, 100% financing, no VA funding fee if the vet is disabled, full mortgage loan product range

Cons: underwriting is cumbersome, VA funding fee for non-disabled Vets

4. Construction Loans

A construction loan is for a homeowner who wants to build a custom home. So they hire a builder and architect, have plans drawn up, and use the construction loan to buy the land and pay the builder as he builds the custom home.

FHA provides a 203(k) mortgage loan, which is their version of the construction/renovation loan.

Pros: if you’re building a custom home, it’s the only mortgage loan type available. You’re only billed on what you use. The mortgage loan is refinanced after the home is completed into a permanent mortgage loan.

Cons: mortgage loan rates are higher.

5. Second Mortgages

A second mortgage comes in 2 forms: a fixed rate second mortgage and a Home Equity Line Of Credit HELOC. If you want access to your home’s equity, a second mortgage is a good way to get it. It may be a good alternative to refinancing your existing first mortgage and taking additional cash out.

Pros: Allows you to access your home equity. Your only billed on what is used on the HELOC.

Cons: HELOC rates are variable and can move higher. Fixed rate second mortgages have higher mortgage rates than first lein mortgage loans.

So there you have it: the 5 Mortgage loan types that may help you!

The Main Reason Why Homeowners Can’t Get The Lowest Mortgage Rate

January 25th, 2012 |

Author: yroth

Can You Get The Lowest Mortgage Rate?

Everyone wants the lowest mortgage rate.

If you’re buying a new home or refinancing your existing mortgage loan, you want the lowest possible mortgage rate. And why not? So do I.

So homeowners will do their due diligence and shop around to different mortgage companies and get mortgage rate quotes in search of the lowest mortgage rate.

Here’s the problem.

The lowest mortgage rate doesn’t exist.

Let’s say you’re buying a new home and you’re scheduled to close on or before a certain date.

You have a time constraint so you can’t shop and wait around indefinitely for “the mortgage rate bottom.”

However, if you’re refinancing your existing mortgage, there is no such time constraint. So some homeowners will wait to find the lowest mortgage rate.

Here’s the problem: finding the lowest mortgage rate is like waiting for a stock price to reach a certain price point.

It might get there and it might not. Or it might take 3 years to get there.

If you were to look at where mortgage rates and their associated costs have been over the past 3 years – for example – there was 1 day out of the past 3 years that the “mortgage rate” was the lowest.

To try and game mortgage rates in search of the “bottom” is foolish.

Here’s what to do. Look at current mortgage rates and their associated costs. Ask yourself, “Is there benefit to refinance into that market mortgage rate?”

Are you lowering your mortgage rate? Are you lowering your mortgage payment? Are you reducing your mortgage loan term? Are you able to recover your closing costs in a reasonable amount of time?

If there is benefit, take it and lock it in.

To “game” mortgage rates in search of the mortgage rate bottom doesn’t work because the lowest rate doesn’t exist.

While mortgage rates change and you’re waiting for that elusive mortgage rate bottom to appear, you could be saving and benefiting now.

2 Things That Can Screw Up Your Mortgage Refinance Closing

January 24th, 2012 |

Author: yroth

I do a ton of mortgage loan refinance transactions.

It seems the main item homeowners are concerned with, in addition to the mortgage rate and fees, is whether they’ll have to bring money to the mortgage refinance closing.

Most homeowners don’t want to.

If there are costs and escrows that have to be collected at the mortgage refinance closing, then most people want that money included in the mortgage loan amount.

Sometimes, however, homeowners will get a copy of the HUD-1 Settlement Statement before the mortgage refinance closing and they see they have to write a check for $500 or $950 or what ever the figure may be.

They say, “Wait a minute, why am I writing a check at closing when I wanted the money included in the mortgage loan amount?”

Here’s the answer.

There are 2 things that can change whether the homeowner has to bring money to the refinance mortgage closing and can potentially disrupt or screw up the mortgage refinance closing.

The 2 things are: the existing mortgage payoff figure and the escrow amount that the lender is collecting.

Let me explain.

Think of the money break down in terms of credits and debits.

Let’s start with the debits.

The first debit amount would be the mortgage refinance closing costs. The homeowner should have a very good idea what the mortgage closing fees are going to be prior to closing.

They received a Good Faith Estimate GFE showing the lender fees, title fees, appraisal fee and government recording fees.

Those numbers provided on the Good Faith Estimate GFE should not be off by more than 10% and the lender fees have to be 100% spot on.

Remember, the mortgage broker or loan officer that provided the Good Faith Estimate is estimating “third party” fees, such as title work, appraisal, and government recording fees.

So if the GFE says the third party fees are $2000, then they cannot be off by more than $200, which is 10%.

So the mortgage refinance costs are pretty well nailed down beforehand.

The second debit is the escrows that the lender is collecting. (This only applies if the homeowner is setting up an escrow or impound account.)

The esrows are the annual property taxes and dwelling insurance premium. In addition, there will be prepaid interest, but this figure will depend on what day the mortgage refinance funds on.

What the mortgage closer does first is determine the annual property taxes and dwelling insurance premium amounts, then they’ll look at when the taxes and insurance are due.

Based on that information, they will collect a certain amount to fund an escrow account at the mortgage closing.

If the mortgage broker of loan officer knows what they’re doing, they can provide a reasonable approximation to the homeowner to account for this debit when the new requested mortgage loan amount is figured out.

The third debit is the old mortgage payoff amount.

This is where people get screwed up. They believe that the mortgage balance that they see on their mortgage statement is the mortgage amount that is actually owed.

In reality, mortgage interest accrues in arrears, so the mortgage payoff is usually higher than what is shown on the mortgage statement.

To recap, the 3 debits are the mortgage closing fees, escrows collected, and existing mortgage payoff amount.

The 2 things that can screw up the mortgage refiance closing are a poor estimation or calculation of the escrow amount to be collected and the old mortgage payoff amount.

The mortgage costs are fixed, so we know what they are.

It’s the mortgage escrows and payoff that may be different than what was originally calculated.

So the 3 debits are added up and then the credit is applied.

The credit would be the new mortgage loan amount.

If the debits are larger than the credit, then the homewoner will have to bring money to the mortgage closing table.

If the credit is larger, then the homeowner will get cash back.

In conclusion, the 2 things that can screw up a mortgage refinance closing would be if the existing mortgage payoff figure and the property tax and dwelling insurance escrow figures aren’t calculated correctly when the mortgage loan application is originally taken and as a result the new requested mortgage loan amount isn’t high enough, forcing the homeowner to bring money to the mortgage closing table.

The new mortgage loan amount can be increased at to cover the difference. However, it’s best to get the new requested mortgage loan amount correct at the outset so there are no delays or hiccups at the mortgage refinance closing.

Are You Getting Ripped Off By Using A Mortgage Broker To Refinance Your Mortgage?

January 22nd, 2012 |

Author: yroth

Getting Ripped Off By Using A Mortgage Broker To Refinance The Mortgage Loan

Are You Getting Ripped Off By Using A Mortgage Broker?

This mortgage question is always at the top of a homeowners’ mind and that is “Am I overpaying by using a mortgage broker?”

Well, here’s the answer, “It depends.”

A lot of people are under the assumption that because the mortgage broker is a middleman, they are going to pay more for the mortgage refinance.

I’m always asked “Are you a mortgage broker or a direct lender?”

I’m a direct lender. However, I’ve worked as a mortgage broker for over 10 years.

Getting back to the question about whether the homeowner is overpaying by using a mortgage broker – the answer is maybe not.

Some mortgage brokers price their mortgages very competitively.

Just because the mortgage broker “brokers” the file to a mortgage wholesale lender, doesn’t necessarily mean the home owner is getting ripped off or overpaying for the mortgage.

I talk to many homeowners who are quoted mortgage rates from the big banks. The mortgage loan rates that their being quoted aren’t competitive. The big banks don’t always have to be competitive.

So just because it’s a big bank that’s quoting the mortgage rate, doesn’t mean it’s going to be a competitive mortgage quote.

As a homeowner looking to refinance their mortgage loan, you want to do your due diligence.

Get a mortgage quote from a mortgage broker. Remember, don’t rely on the mortgage quote exclusively.

Ask the mortgage broker how much they are charging in TOTAL lender fees for the mortgage rate.

When pricing a mortgage, you price on mortgage rate AND total lender fees.

Don’t get confused about whether there are “no points” on the loan. Sometimes there amy be no points but $1500 in “lender administration” fees.

It’s the bottom line lender fee figure you want to compare.

In addition to getting a quote from a mortgage broker, get a quote from a mortgage bank as well.

Again, compare the mortgage rate and lender fees.

In conclusion, just because you’re talking to a mortgage broker doesn’t mean your getting ripped off.

Get the mortgage rate quote and lender fee total and compare!

4 Mortgage Loan Types To Refinance Into In 2012

January 20th, 2012 |

Author: yroth

If you haven’t considered refinancing your mortgage, or if you haven’t refinanced your mortgage in the last 2 years, you really ought to consider refinancing now.

The top mortgage loan types to refinance into in 2012 are as follows:

1. 10 Year Fixed Mortgage

This mortgage rate is fixed for 10 years, after which time the mortgage loan will be paid off. The mortgage rates for the 10 year fixed are remarkably low.

This mortgage type, although having a bigger principal and interest payment because of the short mortgage term, is the cheapest mortgage loan type available.

The net effective mortgage rate is exceedingly low, you’ll save money in total mortgage interest paid, and the mortgage loan will be paid off sooner, saving you thousands of dollars in mortgage payments that you WON’T be making!

It’s definitely worth looking into refinancing into the 10 year fixed mortgage.

2. 15 Year Fixed Mortgage

If the mortgage payment for the 10 year fixed mortgage is too high or exceeds your budget, consider the 15 year fixed mortgage.

Like the 10 year fixed mortgage, the 15 year fixed mortgage is an equity builder.

Beginning with your first mortgage payment, 50% of that principal and interest payment goes to lowering the principal balance of the mortgage loan.

The mortgage rate and mortgage payment are fixed for 15 years and the mortgage loan will be paid off in 15 years! If you can swing the mortgage payment, you want to look at refinancing into the 15 year fixed mortgage.

Oh, by the way, the mortgage rates for the 15 year fixed, like the 10 year fixed are at historic lows!

3. 30 Year Fixed Mortgage

The 30 year fixed mortgage is the old stand by.

If you plan on keeping your home for the long term and if the mortgage payment for the 15 year fixed and 10 year fixed are outside your budget, then consider refinancing into a 30 year fixed mortgage.

The mortgage rate and mortgage payment are fixed for 30 years and the mortgage rates are also at historic lows!

You can prepay against the 30 year mortgage if you want to speed up equity buildup as well, so there is mortgage payment flexibility.

4. 7/1 Adjustable Rate Mortgage ARM

The 7/1 ARM is best if you plan on keeping your home for a period less than 7 years.

If that’s the case, and you don’t want to make a higher mortgage payment with a 15 year fixed mortgage or 10 year fixed mortgage, then the 7/1 ARM is a strong refinance contender.

The mortgage rates for the 7/1 ARM are very, very low and the mortgage rate and mortgage payment are fixed for 7 years. The mortgage loan is amortized over a 30 year period so the mortgage payment will be low.

You won’t build up a lot of home equity, but the mortgage payment and mortgage rate will be lower than the 30 year fixed mortgage.

Depending on your goals, these 4 mortgage loan types are the mortgage loans you want to consider if you haven’t refinanced your mortgage in the last 2 years.

What Types Of Mortgage Loans Are Available For You In 2012?

January 19th, 2012 |

Author: yroth

Five years ago there were so many different mortgage loan types, from the conventional fixed rate mortgages, to interest only mortgages, stated income loans, loans for people with poor credit, as well as negatively amortized loans, also called Option ARMs.

We all know what happened beginning in 2007. The mortgage industry imploded and the housing crisis was full on!

Although the housing crisis isn’t completely over, the dust is beginning to settle now.

I wanted to review the types of mortgage loans that are still available in the market place in 2012.

Let me begin by saying what mortgage or home loan types are not available to you.

I am unaware of any stated income or no income verification loans available in the mortgage marketplace. (If you’re a mortgage broker out there and are aware of a stated income or no doc loan program, let me know.)

Also, the sub prime mortgage market has been wiped out. If your credit scores are below 620, I’m unaware where you can get a mortgage, even through FHA.

Now the mortgage loan types that are available.

All fully documented loans. This means you have to verify your income and assets.

There are the 30 year, 25 year, 20, 15 year and 10 year fixed mortgages. I’m unaware of any conventional mortgage types that have a shorter amortization period than 10 years.

There are the traditional adjustable rate mortgage, also called ARMs.

There are the 10/1, 7/1, 5/1, and 3/1 ARMS.

Someone the other day told me about a 5/5 ARM.

With this mortgage, the start rate is fixed for 5 years, then adjusts according to the index and margin, then is fixed for another 5 years, unlike a traditional 5/1 ARM, where the rate can adjust once a year after the initial 5 years is up.

I’m not aware of any 6 month or 1 month LIBOR ARMs available.

There are interest only mortgages still available; however, your credit has to be very good and you need 24 months principal, interest, taxes and insurance PITI saved as reserves.

Finally, FHA, USDA, and VA still offer fixed rate and adjustable rate mortgages.

So, in conclusion, the mortgage loan types that are available have scaled back considerably over the past 5 years.

However, as long as you can verify your income and your credit is good, you do have access to the full range of fixed rate and adjustable rate mortgages in the mortgage marketplace.

Why A 7/1 ARM Can Be A Smarter Mortgage Choice Than A 5/1 ARM

January 17th, 2012 |

Author: yroth

Is A 7/1 ARM Better Than A 5/1 ARM?

When you’ve decided that an adjustable rate mortgage ARM makes sense for you, the next question is what type of adjustable rate mortgage ARM is best.

Naturally, you’re going to first consider how long you plan on keeping the home and then decide how tolerant you are of risk.

If you’re thinking that 5 to 7 years is your hold time for the mortgage, you then want to look at the mortgage rates for the 5/1 ARM and 7/1 ARM.

Assuming the lender fees for both mortgage types are the same, you want to look at and compare the mortgage rates.

You’ll notice that the mortgage rates and mortgage payments for the 5/1 ARM are going to be slightly lower than the mortgage rates and mortgage payments for the 7/1 ARM.

Don’t be lured by the siren of the low rate.

Strongly consider your mortgage hold time. If it’s possible you can keep the mortgage beyond 5 years, it would make sense to pay the higher premium and take a slightly higher mortgage rate.

See the difference in monthly mortgage payment.

If there is a .25% or .375% difference in mortgage rate, the mortgage payment difference isn’t going to be dramatic, unless the loan amount is very large.

In my opinion, if you’re uncertain whether your mortgage hold time is 5 or 7 years, it makes more sense to take the slightly higher mortgage rate and mortgage payment with the 7/1 adjustable rate mortgage and be protected for the additional 2 years.

The ARM cap structure for the 5/1 and 7/1 ARMs is most commonly a 5/2/5 cap structure, which means that your mortgage rate can increase 5% after the first adjustment.

So after the 60th month on a 5/1 ARM, your mortgage rate can increase 5% over the mortgage rate you had for the first 5 years.

Given this, it would make more sense to secure the mortgage rate and mortgage payment for the additional 2 years and go with the 7/1 ARM.

In conclusion, if you’re unclear about your mortgage hold time and it can be around 5 to 7 years and as long as the mortgage rate and mortgage payment difference isn’t significant, it makes more sense to secure the 7 year fixed ARM and be safe.

Is Your Mortgage Company Stealing Your Money At Your Refinance Closing?

January 13th, 2012 |

Author: yroth

This mortgage question I get from time to time.

I got a call from a homeowner who was about to close on her mortgage refinance transaction.

She was looking at her HUD-1 Settlement statement and noticed that the mortgage company was collecting prepaid interest for 11 days.

At $37.52 per day, this amounted to $412.72.

She also noticed from the old mortgage payoff date that her old mortgage company was collecting a balance from a date about 12 days from when her new mortgage funded.

I think her new mortgage funds on January 19 but her mortgage company was collecting money through Feb 4.

She asked me,”Why am I paying prepaid mortgage interest from January 19th through January 30th and also paying my old mortgage company per diem mortgage interest through February 4th when they get paid off on January 19?”

Great mortgage question.

She believed the mortgage company was stealing her money.

Here’s the answer.

She paid prepaid interest from the time her new mortgage funded, which is January 19th through January 30th.

She won’t have a mortgage payment in February.

Her first mortgage payment is due March 1 as all mortgage payments are applied in arrears.

I explained that when the title company ordered the mortgage payoff for her existing mortgage, they don’t know exactly when the new mortgage will fund.

So the title company will request a mortgage payoff for a few weeks beyond what the target mortgage fund date is estimated to be.

They do this in the event there is a clich in the mortgage underwriting process and the mortgage closing is delayed and closes after the payoff date. If this were to happen, the title company would have to order a new mortgage payoff, which would delay the mortgage closing even more.

What’s happening is that the old mortgage company is collecting 15 days of extra mortgage pre diem interest from her.

I think this amounted to around $550.

I explained that that money is hers and that the old mortgage company will refund any overage to her.

As the old mortgage company was fully paid on January 19, they’re not entitled to any mortgage payments or mortgage interest beyond that date.

Since they collected beyond that date, the difference between the fund date and the mortgage payoff date would be refunded to the borrower.

In conclusion, your mortgage company isn’t stealing from you if they collect more than what is owed to them.

If they do collect more than what is owed (which is common for mortgage refinance transactions), they will refund you the difference.

Yale Roth M.A., M.Ed

Archive for the ‘Consolidation Loan’ Category

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

Related Posts:

What Happens At A Mortgage Refinance Closing?

Related Posts:

5 Mortgage Loan Types That May Help You Get What You Want

Related Posts:

The Main Reason Why Homeowners Can’t Get The Lowest Mortgage Rate

Related Posts:

2 Things That Can Screw Up Your Mortgage Refinance Closing

Related Posts:

Are You Getting Ripped Off By Using A Mortgage Broker To Refinance Your Mortgage?

Related Posts:

4 Mortgage Loan Types To Refinance Into In 2012

Related Posts:

What Types Of Mortgage Loans Are Available For You In 2012?

Related Posts:

Why A 7/1 ARM Can Be A Smarter Mortgage Choice Than A 5/1 ARM

Related Posts:

Is Your Mortgage Company Stealing Your Money At Your Refinance Closing?

Related Posts: