Yale Roth M.A., M.Ed

Posts Tagged ‘mortgage refinance questions’

If you are in the process of refinancing your mortgage, you want to know about the mortgage rescission period.

What this means is that when you’re refinancing your mortgage, after you close the on the mortgage, the mortgage won’t fund until 3 days after you close or sign the mortgage paperwork.

The 3 days after you sign is called the mortgage rescission period, or cancellation period.

This allows the borrower to cancel the mortgage refinance transaction if they wish.

It’ sort of like a “cooling off” period that allows the borrower to reflect and make certain they want to continue with thet mortgage refinance transaction.

The mortgage rescission period only applies to primary residences.

If the borrower is refinancing an investment property, the mortgage will fund on the same day the borrower closes the mortgage.

In addition, the mortgage rescission only applies to mortgage refinancing, not to a new home purchase.  For example, when a homwowner or first time home buyer closes on a new home purchase, the mortgage will fund on the close date.

Homeowners also want to know that your mortgage rate lock period is included in the mortgage refinance rescission period.

So, if the borrower’s mortgage rate is locked for 30 days, the borrower wants to close on the mortgage by the 27th day.  This will allow for the 3 day right to rescind.

When a homeowner closes on the mortgage refinance, the title officer or closing attorney will show the homeowner a document called the right to rescind.

It outlines the date when the mortgage refinance will fund and provides a signature line and fax number to where the rescission letter should be sent in the event the homeowner wants to rescind.

The mortgage company also has to acknowledge receipt of the rescission letter, so you want to call them and make sure they received it.   A phone call to the mortgage company saying you want to rescind won’t work – you need to fax the rescission letter.

If the third day falls on a Saturday or Sunday or Federal holiday, the final rescission day moves to the following Monday or day after the holiday.

To conclude, can a homeowner rescind a mortgage after they’ve closed on a mortgage refinance transaction?

The answer is “yes”; but only if the property is a primary residence and a signed rescission letter must be received by the mortgage company within 3 days of the sign or mortgage close date.

Related Posts:

• 6 Tips On How To Refinance Your Mortgage If Your Home Is “Underwater.”
• Mortgage Questions – “Can You Finance Your Mortgage Closing Costs?”
• Mortgage Refinance Questions – HARP? Is It For You?
• Mortgage Refinance Questions – “What’s Your Mortgage Rate With No Points?” Is This The Right Mortgage Question?
• Mortgage Refinance Questions – Do You Need To Drop Your Mortgage Rate By 1% To Justify Refinancing?

Is Your Home Underwater?

I get this mortgage refinance question a lot!  Here it is: “What Do I Do If I Owe More On My Mortgage Than What My Home Is Worth?”

This mortgage question is commonplace now as there are a number of homeowners who owe more on their mortgage than what their home is worth.

So what are the homeowners’ options?

Here are the answers.

1.  Pay your mortgage down so you have equity in your home and you’ll qualify for a conventional mortgage refinance. You’ll need to have at least 3.5% equity in your home to qualify for a FHA mortgage refinance and 5% to qualify for a conventional mortgage refinance.

Here’s the issue with that solution.

Most people don’t have thousands of dollars laying around to pay down on their mortgage when their property value is lower than what they owe.  This is taking good cash that has present day value and putting it against a non-performing asset – the home.

If it’s a small amount that you would need to pay down on the mortgage, then you may want to consider it; otherwise, forget about it.

2. Apply for a HARP Home Affordability Refinance Program loan.

HARP is a new mortgage refinance program that allows homeowners who currently owe more than their property’s value to refinance into a lower mortgage rate.

There are guidelines for HARP and some homeowners may not qualify.

This is the first option I would recommend exploring if your mortgage balance is more than your home’s appraised value.

3. Contact your mortgage company and ask them if you qualify for a mortgage modification.  Similar to the HARP mortgage refinance program, you have to qualify for a mortgage modification.  The mortgage modification can reduce your mortgage rate and mortgage payment.

4. Do nothing.  Just continue to make your mortgage payments and wait until you home value increases.

5. Sell your home in a “short sale.”  This means that you are selling your home for less than your existing mortgage balance.  Your mortgage company will have to agree to the short sale price.

6. Walk away.  Believe it or not, there are a lot of homeowners who considering this option.

It’s called in some circles a “strategic default.”

Here’s how it works.  You’ve analyzed your options.  You may not qualify for the HARP program or you may not be eligible for a mortgage modification or you don’t want to take – say $30,000 – out of your savings to pay your mortgage down so you can qualify for a conventional refinance or you’re unable to sell your home so you can’t do a short sale.  So what do some homeowners do?  They walk away.

In conclusion, there are options available to reduce your mortgage rate and mortgage payment if you owe more than your home is worth.  You want to explore all the options and determine which will benefit you most.

Related Posts:

• Why HARP 2.0 Might Be Right For You
• 3 Ways To Lower Your Mortgage Rate
• Mortgage Refinance Questions – HARP? Is It For You?
• Mortgage Questions – “Is A 30 Year Fixed Mortgage Better Than A 15 Year Fixed Mortgage?”
• Mortgage Refinance Questions – Do You Need To Drop Your Mortgage Rate By 1% To Justify Refinancing?

I get this mortgage question from time to time – especially from first time home buyers: “Can I roll my closing costs into the mortgage amount?”

Well the answer is, “It depends.”

If the mortgage transaction is a purchase, you are not able to include your closing costs into your mortgage amount.  You can, however, negotiate a seller credit whereby the seller of the home can pay your closing costs.

This would be called a “seller credit” to be applied to the home buyer’s closing costs.  The credit ranges between 3% and 6% of the purchase price, depending on the size of your down payment.

You can also negotiate a lender credit.

Your mortgage company, who is considered an “interested third party,” can give you a credit to be applied towards your closing costs.

If the transaction is a refinance, you can roll your closing costs into your mortgage amount, as long as the loan to value ratio doesn’t exceed the lender’s guidelines.

In addition, if you’re refinancing and you choose to include your closing costs in your mortgage balance, the transaction type is still called a rate and term refinance, not a cash out refinance.

After you roll your closing costs into your mortgage amount and you’re still getting more than 1% or $2000, which ever is less, back to you, then the transaction type changes to a cash out refinance.

The mortgage transaction type matters only if it effects the pricing of the mortgage.  By “pricing” I mean the lender fees you’re paying to get the mortgage rate you want.

The pricing or cost of the mortgage rate is only effected if the loan to value ratio is above 60%.

The reason why mortgage people get a bad rap sometimes is because the mortgage rates and costs to get the rates are so nuanced and depend on the mortgage parameters.  What I mean by mortgage parameters are the credit scores and the loan to value ratio.

So if the mortgage parameters change, the pricing can change and sometimes the mortgage rate can change.  This can happen when the appraisal comes back lower than what’s expected and as a result the loan to value will increase.

Often times, homeowners think there is a “bait and switch” going on when there isn’t.

In conclusion to the mortgage refinance question, “Can I roll my closing costs into the mortgage amount?‘, you can if the mortgage transaction is a refinance and the loan to value ratio doesn’t significantly change after the mortgage amount increases.

If the mortgage transaction is a purchase, you cannot; however, you can negotiate with the seller  a “seller concession or seller credit” which can cover your closing costs or you can lock a slightly higher mortgage rate and have the mortgage lender pay your closing costs.

Related Posts:

• Mortgage Questions – How Do I Calculate My Closing Costs For My Mortgage Refinance?
• Are Mortgage Rates Higher If You Finance Your Home Loan Costs?
• Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?
• Mortgage Refinance Questions – HARP? Is It For You?
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”

HARP - Home Affordable Refinance Program. What Is It?

I’m getting a lot of mortgage questions about the HARP program so I thought I’d write a short post outlining what it is.

HARP, which stands for the Home Affordable Refinance Program, aims to make refinancing easier and possible for homeowners who are unable to refinance into a conventional or FHA mortgage because they owe more than their home is currently worth.

For example, if you currently owe more on your mortgage than your home is currently worth, the only way you can refinance the existing mortgage into a lower mortgage rate or shorter mortgage term is to take cash out of your savings and pay your mortgage down so there is equity.

Remember, equity is the difference between what your mortgage balance and your home’s value.

A lot of people either choose not to do this or cannot afford to pay the mortgage down.

And who can blame them.

To do this would be to take cash that has present day value and pay it against a declining asset.  Yes, you don’t want to think of your home as an asset, but it is and when the home value is dropping, the asset isn’t performing well. It’s like taking good cash and putting it against a bad asset.

So now people who are “underwater” can take advantage of the low mortgage rates and refinance their existing mortgage.

But wait, there’s more!

You have to qualify for HARP.

What are the HARP qualifications?

Here they are:

1. Your current mortgage must be owned by Fannie Mae or Freddie Mac.

2. The mortgage must have been sold to Fannie Mae or Freddie Mac before May 2009

3. You have to be current on your current mortgage and not have been late over the past 12 months.

4. The current loan to value ratio LTV cannot be lower than 80%

In addition, certain lenders put “overlays” on this criteria, which make it even tougher to get.

For example, some lenders still have a 125% loan to value cap as well as a minimum credit score requirement of 620.

Also, if you’re currently paying PMI private mortgage insurance, you aren’t eliglible for HARP or if you’re in a FHA mortgage, you’re not eligible for HARP.

What you want to do if you’re current mortgage balance is greater than what your home is currently worth is to contact your existing mortgage servicer and see if you qualify.

If you do, you want to shop around  to see where you can get the best HARP mortgage terms.

Related Posts:

• Can You Get A Mortgage Loan After You’ve Had A Bankruptcy?
• 6 Tips On How To Refinance Your Mortgage If Your Home Is “Underwater.”
• Mortgage Questions – “Can You Finance Your Mortgage Closing Costs?”
• FHA Mortgage Questions – “What Is A FHA Streamline Refinance?”
• Mortgage Refinance Questions – “What’s Your Mortgage Rate With No Points?” Is This The Right Mortgage Question?

"What's Your Mortgage Rate - No Points?" Is This The Right Mortgage Question To Ask?

I get a lot of mortgage refinance questions, but none more than this one: “What’s Your Mortgage Rate With No Points”? 

This is the WRONG mortgage question to ask your loan officer or mortgage broker.

The correct question is: “What Is the Mortgage Rate and What Are The Lender Fees to Get the Mortgage Rate?”

Here’s why.

The reason this is the correct mortgage question is because consumers are sometimes led to think that they are not paying any points but are in fact paying the “x” amount of dollars in lender fees.

The “x’ amount could be a lot of money – like $800, or $1200, or $1500, depending on the lender and what they think they can get you to pay.

First, I think I should define “points.”

Points come in two forms: the first are called discount points.

Discount points are prepaid interest that the borrower pays upfront at closing to get a lower mortgage rate.

The reason why someone would pay discount points is because they plan on owning the home for a long time and they know that they will pay less in mortgage interest over the long term with the lower mortgage rate even though they are paying more upfront (i.e. prepaid interest or discount points).

Paying discount points can make sense – you just have to do the math and calculate the recoup period and also look at an amortization calculator to see how much you’ll save with the lower mortgage rate.

The other definition of points are called origination points.

Origination points are just considered “fat” on the loan that increases the lenders or mortgage brokers revenue.

There is no benefit to the borrower in paying origination points.

You can be quoted the same mortgage rate by two different mortgage companies: one charging you 1 point origination fee and the other not charging you an origination fee.

1 point is 1% percent of the mortgage amount so if you’re borrowing $200,000, 1 point is $2000.

If you had the choice save $2000 for the same product (i.e. the 4% mortgage rate) which is being offered by both lenders, why pay more?

So what you have to do is get the mortgage rate quote and ask what are the total lender fees including or discount points and/or origination fees.

Sometimes mortgage brokers or loan officers will quote a rate and say that’s a “no point” mortgage.  However, they are charging you $1500 in lender fees that they are calling something else – like a lender administration fee or underwriting fee, etc.

The mortgage question “What’s your mortgage rate with no points?” is the wrong mortgage question.

You want to get a mortgage rate quote and you want to know what the total lender fees are you’re paying to get that mortgage rate.

Related Posts:

• Mortgage Questions – “Does It Make Sense To Pay Discount Points To Get A Lower Mortgage Rate For An Adjustable Rate Mortgage?”"
• Mortgage Questions – “What’s The Difference Between A 30 Year Fixed Mortgage And A 10 Year Fixed Mortgage?”
• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”
• Mortgage Questions – “How Much Money Is My Mortgage Company Making?”
• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”

Should You Refinance Your Mortgage If You're Only Dropping Your Mortgage Rate By .5%?

This is another great mortgage question I get – a lot.

A lot of people are under the impression that they have to reduce their mortgage rate by 1% to 2% to justify refinancing.

This assumption isn’t correct.

When determining whether you should refinance, you want to look at the benefits and costs.

Would it make sense if you dropped your mortgage rate by .5%, saved $175 per on month in a mortgage payment, recovered your costs in 12 months and only lost 1 year by resetting the new loan term?

Possibly.

What you have to consider first are the benefits and costs.

1.  Are you lowering your mortgage rate?

2.  Are you lowering your monthly mortgage payment?

3.  How much are you lowering your monthly mortgage payment by?

4.  How much are the closing costs?

5.  How long will it take you to recoup your closing costs? Less than 1 year, less than 3 years?

6.  How long do you plan on owning the home.  Will you own it long enough to recover your closing costs?

So, as mentioned before, if you can drop your payment enough and recoup your costs in a reasonable amount of time, you don’t have to wait until the mortgage rates fall more than 1% from your current mortgage rate.

Again, for example, if I can save $150 per month and recoup my closing costs in less than 1 year and I’m not losing many years in the amount of equity I’ve already put into the existing mortgage, then yes, it does make sense to refinance the mortgage if you’re only dropping the mortgage rate by a number less than 1%.

On the other hand, if you’re only saving $75 per month and it’s taking to 5 years to recover your closing costs and you’re losing – let’s say – 5 years in equity that you’ve already paid into the existing mortgage, then it doesn’t matter whether you’re dropping the mortgage rate by 2%, under this scenario, the costs out weigh the benefit and refinancing doesn’t make sense.

I hope this helps answer the mortgage question: “Do you need to reduce your mortgage rate by 1% – 2% to justify refinancing your mortgage”?

Related Posts:

• Mortgage Questions – “What’s The Difference Between A 30 Year Fixed Mortgage And A 10 Year Fixed Mortgage?”
• Mortgage Refinance Questions – “What’s Your Mortgage Rate With No Points?” Is This The Right Mortgage Question?
• 6 Tips On How To Refinance Your Mortgage If Your Home Is “Underwater.”
• Mortgage Questions – “Can You Finance Your Mortgage Closing Costs?”
• Mortgage Refinance Questions – HARP? Is It For You?

Do You Have Any Mortgage Refinance Questions?

For those of you who have mortgage questions about refinancing, this is a valuable post.

The mortgage question: “When Does It Make Sense To Refinance Your Mortgage”?

There is a lot that goes into this mortgage question.

First, you want to ask yourself,  “What are you trying to accomplish by refinancing?”

Is it to lower your mortgage rate, or lower your mortgage payment, or shorten your mortgage term, or a combination of the three?

Is it to take cash out to and do a debt consolidation loan?

After determining your goals for refinancing, you want to look at the benefits and costs.  Naturally, you want the benefits to outweigh the costs.

Here are some questions you want to answer:

Are you dropping your mortgage rate?

How much are you saving from a monthly cash flow standpoint?

Are you taking years off your term?

How long do you plan on owning the home?

If you are lowering your mortgage rate and lowering your monthly payment, great!  If you’re taking years off your term, great!

Now, what are the costs?

Look at the total closing costs.  How much are you saving monthly?  Divide that figure into the costs to see how long it’ll take you to get your money back.

Is the recoup period less than 1 year, less than 3 years, 5 years, etc.

You want to be able to recover the costs in as few years as possible.

So if you’re saving $150 per month and your closing costs are $1500, it’ll take you 10 months to get your money back.  That’s a short recoup period.

How long do you plan on owning your home.  If you plan on selling it in the next 3 months, for example, then a 10 month recoup period doesn’t make sense.  It think you get the point I’m making.

The other element you want to consider is how much time you’ve already paid into your existing mortgage.

If you’re lowering your mortgage rate and mortgage payment but you’ve already paid into your existing loan for 7 years on a 30 year fixed mortgage, do you want to go back out 30 years for the benefit of lowering the mortgage rate and payment?

Look at an amortization table and look at the numbers to see whether this makes sense.  It may not.  You have to do the analysis.

To summarize the answer to the mortgage question: “When does it make sense to refinance your mortgage” you want to look at the benefits and the costs and make sure the benefits are greater.  Hope this helps!

Related Posts:

• Mortgage Rate Questions – “Are The Mortgage Rates The Same For A Cash Out Refinance?”
• Mortgage Rate Questions – “What Happens If My Mortgage Rate Lock Expires?”
• Mortgage Rate Questions – When Do Mortgage Rates Change?
• Mortgage Rate Lock Questions – When Should You Lock Your Mortgage Rate (When You’re Buying A New Home)?
• Mortgage Refinance Questions – “Should You Lock Your Mortgage Rate?”