Mortgage News and Notes

Refinancing the balance of your 30-year mortgage to a 15-year offers tremendous benefits, including:

  • More of your payment goes to principal each month, building equity much faster.
  • The total interest you pay over the life of the loan is drastically reduced.
  • Rates for 15-year mortgages have dropped substantially recently, and are near historical lows.

Let’s look at how a 15-year refinance would benefit a typical homeowner.

Our borrower obtained a 30-year mortgage for $400,000 at a fixed rate of 4.50% two years ago, with a monthly payment (principal and interest) of $2027. After 24 months the remaining principal balance is $387,000. Continuing to pay the 30-year loan to maturity will cost $330,000 in total interest. But instead, they choose to refinance into a 15-year mortgage at 3.00%. The total interest to maturity is now only $98,000. Compared to sticking with the 30-year loan, our borrower will save more than $280,000!

Of course, switching to a 15-year mortgage will result in a higher monthly payment, but that increase goes towards principal, which builds equity much faster.

Remember, rates are subject to change, so contact Margie soon if you would like to hear more of the details. She would be happy to show you just how much you can save.

Have a great week!

Steven H Hofberg, Operations Manager


Posted in:Refinance and tagged: EquityRefinance15-year
Posted by Steven Hofberg on January 29th, 2020 1:29 PM

Adjustable Rate Mortgages (ARMs) are in the news these days. Not so much about their rates and market share, but on the issue of how the annual adjustments to the interest rate are calculated. Almost all residential ARMs use an index called LIBOR, which is based on a survey of rates major global banks are charging other banks for short-term loans. At adjustment time on your Note, the lender checks LIBOR and adds the margin specified to calculate the new rate that you will pay on the principal balance for the next 12 months. The issue in the news is that the entity that administers LIBOR has, for a variety of reasons, announced that publication of LIBOR is not guaranteed after 2021.

 

Many financial analysts believe LIBOR will be around longer, but for now the search is on for a successor. Fannie and Freddie are interested in SOFR, a measure of the cost of overnight financing between institutions secured by US Treasury securities. There are other indexes whose sponsors are hoping to replace LIBOR as well. The issue for those homeowners that currently have an ARM is that when it comes time for the interest rate to adjust, the new index may not behave in the same way as LIBOR has historically. This would be especially noticeable in periods of economic volatility.

 

ARMs already have uncertainty built in relative to fixed rate mortgages. The potential change to a new index within the next few years adds one more uncertainty, although as with any unknown the results could be good or bad. Incidentally, if you want to see how this change will take place, check your ARM note under “The Index” where you will see this language: “If the Index [LIBOR] is no longer available, the Note Holder will choose a new index that is based upon comparable information.” That is very wide latitude for the lender, I would say.

 

Perhaps it is time to evaluate whether a switch to a fixed rate mortgage is the right choice for your circumstances. Contact Margie to discuss your ARM and she will be happy to run some numbers and help you decide your best option.

 

Steven H Hofberg, Operations Manager

Posted in:Refinance and tagged: RatesRefinanceARM
Posted by Steven Hofberg on November 18th, 2019 10:44 AM

Dear Friends:

Remember when refinancing your mortgage was an endless mass of documents and closing packages that were sometimes north of 100 pages? Not so much anymore. With document imaging and digital signatures, the mortgage process is now more streamlined than ever. RMC is constantly increasing our use of technology and our clients are enjoying the benefits.

At a recent closing, a client told Margie that she was so happy with the ease and lack of stress throughout the entire process. In her situation, she had recently gone through a separation and equity buyout, so having that part of her life in decent shape certainly took away a great deal of stress. She said the last thing she wanted to go through now was endless paperwork for a refinance. But there was substantial money to be savedabout $300 per month. So she took the plunge and to her surprise and delight, the process was smooth and not at all stressful.

If refinancing seems like a steep climb to you, give us a chance to show you the most efficient and low-stress process, allowing you to focus on the financial benefits that will be the result.

Steven H Hofberg, Operations Manager

Residential Mortgage Center Inc

Posted in:Refinance and tagged: RatesRefinance
Posted by Steven Hofberg on August 11th, 2019 3:08 PM

One of the many reasons why I love my clients is that I frequently get ideas on helping other homeowners from them! I recently spoke to a few clients who have great rates on their adjustable rate mortgages (ARMs) right now, but only have one or two years remaining in the initial fixed term before the adjustable rate kicks in. They are concerned about what may happen to their rate and monthly payment in the future.

 

Another client that I spoke with has a seven-year ARM at 3.5% rate with two years remaining before it adjusts to market. No one can predict where rates will be two years from now, but we do know that today’s rates are at historic lows. So even though refinancing to a fixed-rate mortgage would give her a slightly higher rate, the peace of mind from a fixed-rate mortgage at a really good rate made the decision to refinance an easy one for her.

 

If you are in a similar situation, please consider this: since your initial rate on an ARM tends to be below market, and because LIBOR has gone up, the first adjusted rate is almost certainly going to be higher. That increase can be as much as the maximum 5% adjustment, meaning a 3.5% rate can become a 5.5%, 6.5%, or an even higher rate instantly. 

 

The question is, should someone with a soon-to-adjust ARM refinance while fixed rates remain low? The answer, of course, is that it depends on your particular situation. However, it would be worth your time to let me run the numbers for you. Email me at Margie@rmcenter.com or go to the Contact Us page.

 

Margie Hofberg, President

 

Posted by Steven Hofberg on August 1st, 2019 12:15 PM

As mortgage rates continued their decline over the first half of this year, I had the opportunity to speak with many clients and potential clients about their current mortgage debt. In discussing options with them, I found that some had a Home Equity Line of Credit (HELOC) in addition to their first mortgage, some of which had substantial balances. The rate on most HELOCs is tied to the Prime Rate, typically the one posted by the Wall Street Journal. In 2008, it reached a low of 3.25% where it stayed until 2016. However, has been steadily increasing since then and is currently at 5.50%.

Homeowners who took out a HELOC during the period from 2008 to 2016 saw no change in their interest rate for that entire period. For some, it felt like a fixed rate loan with a rate in the middle 3s. But over the last three years, the rate has increased by 2.25%. Payments have increased and now there is uncertainty over future increases.

Here is what I did for two clients last week. They refinanced their first mortgage and the HELOC into a single fixed rate mortgage. The resulting benefits:

  • Savings of a few hundred dollars a month.

  • Principal and interest paid on the entire debt instead of interest only on the HELOC.

  • Uncertainty of future rate fluctuations removed.

     

    If refinancing your HELOC is something that interests you, please contact me to discuss your particular financial situation.

     

    Margie Hofberg, President

Posted by Steven Hofberg on July 11th, 2019 1:19 PM

Recently, we have told you about the dramatic drop in mortgage rates over the past few months. These rates are near their historic lows. Some people predicted that they would rise to 5 percent and above in 2019 - they turned out to be wrong. Rates are below 4 percent for 30-year fixed rate loans, and in the low 3 percents for 15-year fixed rate loans. However, remember that mortgage rates can be volatile. Any unexpected change in the markets, domestic or global, could push them back up.

 

Today I want to talk about some of the options you have when refinancing to lower your rate. The first option, of course, is to lower your payment and save money each month. But there are other options, including the opportunity to refinance to a lower rate while continuing to make the same monthly payment. This substantially increases the amount of principal paid each month.

 

One of our clients came to us with this particular goal and, after we ran the numbers, it turned out that a refinance of her mortgage would enable her to pay it off almost 6 years earlier than its stated term. As a result, a savings in total interest of $150,000 was produced. That is a lot of savings!

 

Contact us today to see how you can benefit from our expertise and this homeowner-friendly market.

 

Steven H Hofberg, Operations Manager

Posted in:Refinance and tagged: RatesLowRefinance
Posted by Steven Hofberg on June 26th, 2019 8:25 AM

Since the beginning of 2019, the yield on the 10-year US Treasury bond has dropped steadily. As our readers know, that bond is the one that most directly affects mortgage rates (which have fallen in lockstep). For a more detailed analysis, please read our recent blog article Bond Market Weakness Pushes Mortgage Rates Lower.

 

Over the past few weeks, the pace of decline has accelerated. Mortgage rates are now well below 4%, and approaching 3%, for 15-year term loans. If your rate is around 4.5% or above, it may make sense for you to refinance your existing mortgage. As always, your decision should be based on the numbers that apply to your particular financial circumstances. That is where RMC can help: we tailor our recommendations to your financial needs. Take a few minutes to discuss your situation with Margie and let her use her years of experience to help you.

Posted by Steven Hofberg on June 18th, 2019 11:30 AM

Summer is just around the corner, and many folks find that this is the perfect time to get moving on a home improvement project. Think of finishing the basement or turning the rec room into a media center. Many homeowners choose new or updated bathrooms or kitchens. They are both considered to be among the improvements that can result in the best payback in home value.

 

With mortgage interest rates still low, refinancing your mortgage can be a good option to enable you to finance that project. Both Freddie Mac and FHA offer cash-out refinance mortgages up to 85% of the value of your home. For example, taking out $50,000 in cash at a rate of 4.125%  results in a payment of $242 per month (APR 4.208%). Let us run the numbers for you. We think you will be pleasantly surprised.

 

There is more good news, this time under the topic of RMC in the Community.

 

As many of our readers know, RMC has been a proud sponsor of the DC Gay Flag Football League (DCGFFL) for several years. The “final four” games were played last Sunday on the Rock Creek Park fields at 16th and Kennedy Streets, and it turned out to be a very special day. Players from the league presented Margie with a plaque thanking her for her sponsorship and support of the DCGFFL. Also, our son Mark Hofberg’s Purple Team won the league championship in a very hard fought and well played game. Lots of smiles all around!

Posted by Steven Hofberg on May 31st, 2019 1:09 PM

There are pricing adjustments to consider when the purpose of a refinance mortgage loan is to take cash out. Adjustments for cash-out loans were increased in 2008 and 2009 as a part of the overall repricing of risk which followed the crash of the secondary market in 2007. During the last few months they were increased again. Here is how these risk premiums affect the cost of a mortgage.

If you applied last week to refinance your existing $400,000 mortgage in order to lower your interest rate you would have been able to get a rate somewhere around 4.875% with no points. But if you also wanted to take cash out (say, for example, to add a deck to your house) you would increase your loan amount to $410,000 which makes the loan a "cash-out." In order to get that same rate of 4.875% it will now cost you 0.375 points (3/8 %). That 0.375 translates to $1500 more in closing costs! Keep in mind that this is just an example and that the actual rate and points will depend on a number of factors including your credit score and the value of your home, but 0.375 is a typical cost differential for a cash-out loan in the current market.

There is one exception. If the purpose of the cash-out refinance is to buy out the interest of a spouse or domestic partner (or ex) pursuant to the terms of a separation agreement or court order, then it is not considered a "cash-out" refinance and therefore the pricing adjustments do not apply. As always, there are rules and restrictions in order to qualify for this exception;for example the property must have been jointly owned for at least 12 months preceding the date of the mortgage application, and the amount of cash taken out is limited to the amount specified in the agreement or order. But assuming those conditions can be met, this "marital discount" for cash-out is very helpful to those of us who work with clients who are in the process of separation and divorce.

Have a wonderful week!  Margie

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com. Or just subscribe to RMC's blog right here! 

Posted in:Refinance
Posted by Steven Hofberg on March 27th, 2011 6:30 PM

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