Mortgage Blog

So you have found the lender that you want to work with on your home refinance.  You understand their fees and you like the loan officer that you are speaking with.  There is just one problem.  Rates aren’t low enough yet.  Your current rate is lower than current rates, or the closing costs involved negate the savings that you would obtain with a lower interest rate.  There is a solution.

Lenders and mortgage brokers can offer a rate watch solution for you.  This allows the lender to watch rates for you and contact you when rates get to the level that makes sense for your situation.  It is a general rule that a refinance makes sense if you can lower your rate by 0.5%.  This is somewhat variable depending on the closing costs and points that would be paid to achieve the lower rate.  Those costs have to be balanced with the monthly savings and the amount of time that you plan to stay in your home.  This is a simple calculation that any mortgage professional can help you understand.

Interest Rate Watch

A rate watch is a great tool for homeowners that are considering a refinance.  Honestly, all homeowners should have a rate watch setup with a lender or broker that they feel comfortable with.  There is no down side.  If mortgage refinance rates never get low enough to make sense for you, they will not contact you.  It allows for you to be contacted at the exact moment that refinancing your mortgage makes sense for you.  It is similar to setting up a set sell price or buy price on a stock.  This eliminates the risk for the homeowner.

Rates may be heading lower over the next few months (although I do not predict what rates will do) as the dollar strengthens and the government adds liquidity to the market.  If I could predict rates I would not be sitting here writing this article.  However, there is an effort to stabilize home prices and help homeowners that are having trouble with their current mortgage.  The options continue to grow for homeowners.  Take some time out of your busy schedule to setup a rate watch with a trusted lender or broker.  Explain to them that you are ready to refinance as soon as rates hit your target.  This is future business for the loan officer or broker and they will be happy to set this up with you.

Congress and President Bush recently signed the Mortgage Relief Bill.  What does the bill do?  How can it help struggling homeowners?  Will it help you with a home refinance?There is quite a debate going on regarding this bill.  Many feel that this is “bailing out” homeowners that signed risky loans.  Some say that this bill will only help the banks.  Putting all of that to the side lets simply look at what this bill does and how it may help you.  I will not get into the ideological and political implications of the bill.

First Time Home Buyers

A first time home buyer (someone who has not owned a home in the last 3 years) will receive a $7,500 credit which will have to be repaid.  Details on this program are not available yet but it will probably act as a silent second.  This would provide a down payment for an FHA loan which only requires 3% down.  This may help to stabilize the housing market in some areas.  The bill also provides an expanded low-income housing tax credit.  All told their will be an unbelievable $15 billion in tax cuts provided through the bill.

Current Homeowners

It is estimated that 2.8 million Americans will lose their home by the end of 2009.  The bill will provide 400,000 of these homeowners with a new mortgage refinance that they can afford.  The idea is to reduce the current loan amount that is owed to the lender.  The Federal Housing Administration will take on a new loan for the homeowner assuming that the old lender will accept a reduced payoff.  This may be much cheaper for lenders that going through the costly foreclosure process.  This will also help to stabilize the housing market.  A homeowner will have to prove that they are currently paying more than 31% of their income towards their mortgage payment to receive this assistance.  They must also be able to prove that they can afford the payments on a reduced loan amount.

Fannie Mae and Freddie Mac

The Mortgage Relief Bill will also open up a line of credit for the government sponsored Fannie Mae and Freddie Mac.  This will be an unlimited but temporary line of credit to lend them emergency money or buy stock in the companies.  This is aimed to relieve investor’s fears.  Fannie Mae and Freddie Mac currently buy or guarantee about half of the country’s mortgage loans.

The bill is meant to stabilize the market by providing more liquidity and saving homes for Americans.  Many people disagree with this idea but it may be necessary.  Stabilizing the market will help all homeowners.  If home values continue to decline it will affect all homeowners, whether they made the right choices when they bought their home or completed a home loan refinance or not.  If this works, everyone will benefit.