Refinancing the balance of your 30-year mortgage to a 15-year offers tremendous benefits, including:
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
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
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
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
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 saved—about $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
Residential Mortgage Center Inc
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
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
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
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
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.
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.
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
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
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
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
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