> – $100,000 @ 6.875 for 120 payments (10 years) = $1154.70 per > month for P&I.

> – $102,250 (100,000 plus 2.25% points) @ 6.125 for 120 > payments (10 years) = $1141.65 per month for P&I.

> Now it only seems logical to take the lower monthly payment. I’d > rather pay $1141.65 for 120 payment verus paying $1154.70 for the > same period of time. But my broker brings up a interesting point. > If you multiple the difference of the two payments of $13.50 by > 120 payments you don’t realize the original $2,250 put up for the > original 2.25 points. He says this is actually a more expensive > loan!!! OK…. I’ll buy that, BUT WAIT how can this be more expensive > to me if my monthly payments are lower and I don’t put up any > cash?????!! ARGHHHHHHH!!!!

> Is my logic correct here and do the lower monthly payments make more > sense OR is my broker on the right track??

Answer: The lower rate makes sense if you hold on to your house for 10 years and don’t refinance again.

If you think you might refinance or sell in the next few years (and who knows what you might want to do?) go with the no points. You’ll owe that much less.

It seems like $13/month is a pretty cheap way to reduce your debt on the house by $2,250. Your broker’s logic would be on the right track ONLY if you had taken cash out of your pocket to get the lower payment. Then you would have to worry about how long it would take to “earn back” the points that you paid. Since you’re not taking anything out of your pocket, there’s nothing to earn back.

BUT……. You are forfeiting $2,250 of equity in your home. If you were to sell your house the day after your refinanced, you would net $2,250 less if you choose the low rate option. In fact, since you pointed out that the monthly savings will never total $2,250, you will net less if you EVER sell the house while the loan still exists. For example, if you sell the house after eight years, your monthly savings will have been $1,296. But your original loan amount was $2,250 higher than it would have been, so your house would net you $954 less than it would have had you taken the no-point option.

Bottom line… it’s a good deal if you intend to be in the house for ten years. It’s not a good deal if you sell within the ten year period.

Answer: The lenders to whom I have spoken seem to be pretty well set on the 30% equity requirement. I have seen people get around this by moving into their rental property and refinancing it while they live in it. They continue to live there for the required period of time after refinancing (6 months or a year, I forget which). After that time they move out.

This approach isn’t for everybody because it usually requires one of the following:

1. Sale of your primary residence. 2. Conversion of your primary residence to a rental. 3. Making two mortgage payments simultaneously without the benefit of the rental income.

If you happen to be in the situation where you are building a new home and need to reduce the payments on your rental, this approach may work out well, otherwise it looks like a lot of inconvenience.

Answer: I’m considering refinancing for the third time in 3 years. I currently have a 1Yr adjustable-rate mortage at 5% which will be “adjusting” shortly. I’ve been quoted a 0 point, no-closing cost 1yr ARM at 4.75%. The only cost to me is the $45 credit report. On paper its a no-brainer, I should do it again. What I can’t figure out is why any lender would be willing to write such a loan. What’s to stop me from doing this every year and getting the new “teaser” rate. The first time we refinanced, in 1992, no one would write a 0 pt ARM, so we got a 0pt 8% 5 year Ballon. In 1993, we were able to get the current 5% with 0 pts, but couldn’t find anyone who would do no closing costs. In each of the first two cases we had to pay about $1200 in closing costs, which took between 7-8 months to recoup. Now I can get the no closing cost loan, I save money immediately.

My instinct says there’s got to be a catch, but I can’t find it.

What’s wrong with this picture? that’s a good question. I think if you look around at other lenders you’ll find the ARMS at a lower rate with closing costs extra. What the lender has done, is bump up the % of the ARM, with maybe a more profitable index, so that he gets paid in cash on the difference between the “ask” on the secondary market and your %.

Answer: …There were plenty of people in the eighties who made money totally legally in the eighties in real estate.

I agree.

…Maybe savings institutions should evaluate people on a case by case basis with some amount of government regulation.

That’s precisely what happens with portfolio lenders.

…As for real estate not being good for the general economy, I believe there would be a fair amount of real estate owners who would strongly disagree with that statement and what industry gene and builders rally leads our country out of recession.

I did not say that “real estate” was not good for the general economy. I said that “real estate speculation” was not especially valuable. What I call “speculation” is buying something (real estate, gold, stocks, whatever) as a gamble rather than as an investment based on economic projections. Of course, everyone’s free to do this. They should just not be surprised when values go down as well as up.

By the way, Sanjay, you still haven’t explained to us what exactly the difficulty is you’re having in refinancing. Is it that rents have gone down? That appraisals have gone down? That you own too many properties to be eligible for FNMA financing?

Answer: If you are interested in refinancing, maybe I can help you. I generally do “no cost” refi’s. I make my money off of the yield spread that the lender pays me to send them your new loan. I am very very competitive….I rarely do any marketing because I work off of referrals. So, that should tell you just how comptetitive I am and how happy my customers are.

If you’re interested in getting more info…please email me.

Even if you decide not to go through me, I can still help you understand the process better and tell you whether you’re getting ripped off or not I do have a valid email that goes directly to the company I work for, but honestly, I never use it. I have my personal email hooked up to Outlook and I work from home 3 days per week. I have references up the ying yang, as well

Again, I’d be more than willing to help you out whether you want to do refinancing through me or not.

Answer: If you know you’ll only be there another 4-5 years, you should get a loan with a 5- or 7- or 10-year balloon payment. You’ll get a very good rate and it will be predictable, unlike an ARM.

I don’t like these loans because I like to have options (such as staying longer than 5, 7, or 10 years), even if that’s are only a remote possiblilty. Your instincts about taking an ARM are right on the mark — if you’ll be out of it in just a few years, you can save a lot o’ money with an ARM.

You can ask for a 15-year term from just about any lender… assuming you are talking about a so-called “conforming” size loan. “Conforming” means, among other things, that the loan amount will be $202,300 or less (on a single- family home) — this type of loan allows lenders more flexibility; 15-year ARMs are already on their “menu”.

If, however, you need a “jumbo” (by definition, over $202,300), you’ll have to look around a bit. Still, it should not be very difficult to find.

Lastly, you sure can prepay a 30-year term to whatever term you want, assuming you have (or can develop) the fiscal willpower to do so — and assuming your state disallows prepayment penalties.

Answer: hpcss01:misc.invest.real-estate / forg…@cbnewsj.cb.att.com (scott.l.forgues) / 4:21 pm Aug 25, 1993 / Finding that I was unable to sell my previous home in PA in a resonable time, I decided to rent the house at about a $125/month loss. I currently have a 9 7/8% mortgage for 30 yrs. I’d like to refinance at today’s lower rates without incurring any substantial closing costs (would like <$1000 on $90K), but I seem to run into the roadblock that the house is now considered an investment property and thus require higher closing costs. Are there any suggestions out there for refinancing an investment property for little or no closing costs? I’m going through it right now in Arizona. The best deal I could find is 8.309% for a $65,000 first on a $130,000 property. I was stunned at how much qualifying I had to do with a 50% equity.

My total closing costs will be about $3,500 with another $1,500 going into my impound fund. (They require 14 months taxes and insurance in advance!.)

In checking back, I found those costs consistent with financing I got in 1987 and 1990. it all depends on where you live, each state has different rules and regulaI am a loan officer for a bank in NJ, and all we do is mortgages. In the begining of this year we started a mortgage program with no closing costs, we ONLY charge a $300 application fee, and that covers everything for most people. As long as the mortgage is above $100,000, we cover all costs. If anybody in NJ is interested, just let me know.

>>Thanks for any info.

Answer: Normally you have to have at least a 20% equity position in your home before the lending institution will allow you to pay your taxes and insurance yourself. At 20% equity they no longer require you to carry private mortgage insurance (PMI). If you are at or above the 20% level be sure to tell the loan officer that you wish to pay the taxes and insurance on your own.

Simply put 1/12 of the annual amount into a savings account each month. When the bills come due, you’ll have the money on hand to cover the expenses. You will have also earned a few dollars in interest by so doing. Never pay PMI if you are over 20% equity. It is a ripoff. This insurance does not cover you for anything. It covers the LENDER in case of a default on your part.

Happy Refinancing!

I do not believe this is correct. Almost all mortgage companies (and banks for that matter) resell the mortgage on the secondary market. They make their profit by a commission up front, and don’t care about the long-term future of interest rates. Touting low interest rates is one way of increasing business. Clearly more people will want to refinance when the interest is comparatively lower than their current rate than when it is comparatively higher. Of course, if a lender promises you a lock and then they screw up and can’t get it honored from their sources of money, then naturally they will want to get out of the deal. Is it a mistake to refinance a home loan with the same lender that holds the current mortgage?

Here are the sad details:

About 2 months ago I chose to refinance my home loan with the lender that holds my current loan, Source 1 Mortgage Company, largely because their agent told me that they probably would not require a new appraisal. They also asked for much less paperwork than my local loan broker. I locked in a very good rate for 45 days. A month ago, the refinance was not yet approved so their agent told me over the phone that she would extend the lock. Unfortunately, I didn’t request that she confirm that in writing. Now she claims that the loan was held up because there was a missing “Deed of Reconveyance”. Furthermore, my lock has expired but they would be happy to lock me in at a rate that is 1/2 point higher. The title agent that handled the original title 5 years ago told me that a missing Deed of Reconveyance is a minor technicality and he has never heard of a loan being held up for this reason.

I realize that a mortgage company has every financial incentive to discourage their customers from refinancing when rates are low. I feel like I was suckered into this deal with the “no appraisal” requirement which would save me about $500. Is there a rule of thumb that it is wise to go with a new lender on a refinance? Is it feasible that a loan company would waive the appraisal requirement on a refinance from an existing customer?

Answer: if a morgage rate is below prevailing rates, who would buy the morgage at face value? Even if a morgage company was fully intending to resell a morgage 1 minute after the deal was closed, it is very much in their interest to have a higher interest rate… the higher the rate, the higher the value of the loan is when they resell it. (just like with bonds) It seems the marketplace favors new deals. But here’s the counter-example: My banker friend tells me that some banking institutions (ones with their eyes open) will rather keep your old loan by refinancing than see your business (cash flow) go elsewhere. Especially if you have you household and business checking accounts at the same bank. This friend did know of a 1% over Prime variable rate second mortgage at his bank. ( I applied and got it) I was a temporary sales promotion prior to the Election. I guess the moral here is: Keeping asking around until you exhaust your patience of find a better deal. Good luck!

> My question is simple: Should I save the money in a savings account in >anticipation of the down payment of the second mortgage or should I pour the >extra money into the first mortgage to build equity into the home? Stated >another way, can I use the equity built up in the first home as a down >payment for the second loan?

Answer: If you dump the money into your home it’ll just sit there (it won’t increase the value of the home, it’ll just add equity equal to the amount you dump into it). Yes you can get it back out by taking a second or refinancing, but it’ll cost you in the form of closing costs.

On the other hand, if you put the money in an interest bearing account it’ll earn interest and you can use it to put money down on the second home. The value of your home will still grow. The equity in your home plus the funds in the account will exceed the equity of the former plan due to the interest you get. Of course when you go to purchase the second property you may want to leave it in the account and finance as much of both homes as possible. That would be my choice.