Your Questions About Mortgage Refinancing Options

Mandy asks…

What type of mortgage does Alan Greenspan have?

Some telemarketers have been bugging me about some secret new type of mortgage with a fixed interest rate of 2.5%. They won’t tell me the details of it unless I set up a meeting with one of their sales reps at my house. They claim that Greenspan has a mortgage of the type they’re offering. Personally, I think they’re full of it, but I am curious.

John answers:

Regardless of Alan Greenspan…

What they are offering you is an Option Arm. The ‘fixed’ 2.5% is the minimum payment required by the lender however your fully indexed interest rate (index + lenders profit margin = fully indexed) will be much higher. How it works is this…

Minimum 2.5% payment = 1000
Interest Only = 1500
30 year payment = 2000
15 year payment = 3000

From this example you can see that your interest payment for the month is 1500 but your only making the 1000 minimum. Where does the 500 go? Right back on top of your existing loan balance. There is nothing special or magic about this loan however unless your willing to bet that your home will continue to appreciate or you will only use the minimum payment very infrequently it most likely is not the loan for you.

I would be happy to speak to you about your refinance options anytime.

Kevin
kruorock@firstratelending.com
866-562-6838 x 106

Donald asks…

What type of mortgage would be best for us?

We are going to refinance our mortgage due to a variable rate issue in August. However, we are un-sure wether to go with a fixed rate or a 5 year ARM at a little over a .5 % less. We do not plan on starying in the house more then 3-5 years so we are considering the ARM. Is that a safe bet? We are in desperate need to reduce our monthly bills and a lower APR would help a lot. We just don’t want to get into a bad situation with an ARM. Pros Vs. Cons? We currently Owe $133,000 and the house appraised right around $200,000.

John answers:

Knowing that you will not be in the house for more than 3-5 more years would indicate that the 5 year ARM is the best option for you. However, there is a lot of uncertainty right now with what mortgage rates are going to do over the next few years and where they will be at in 5 years. You do have to concern yourself with the fact of what if you are still in the home in 5 years, your financial situation could get worse, something could happen to your credit, someone could lose a job, etc… The rate difference of roughly 1/2% is not that much, and will make a difference in your payment of roughly $40 or so, over the course of 5 years $2,400. In my eyes that is not that big of a difference for the added risk. Unless, I knew 100% that I was moving within 3-4 years, I would personally opt for the fixed rate with the current market we are in.

Michael asks…

What should my closing costs be when refinancing?

I want to refinance on my home but I just found out from the bank I’m working with now that I’ll have around $2500 in closing costs. Is that a lot or not? I’ve heard of people refinancing from much less, like $400. Thanks.

John answers:

Some people are unfamiliar with what exactly is included in “closing costs.” Typically, closing costs include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. These closing costs generally are about 2 percent to 6 percent of the mortgage amount.

Lenders are required by the Real Estate Settlement Procedures Act to prepare a Good Faith Estimate within three days of applying for a loan. It’s a good idea to review these estimates, and compare them against multiple offers. You should then weigh your options and consider associated closing costs and what rate you were offered based on your loan qualifications, among other factors.

If you are uncomfortable with the closing costs of the lender you are currently working with, try shopping around with different lenders. Rates and closing costs can vary from lender to lender so it’s smart to have a few options. Good luck with your refinancing!

For free advice, tools and calculators visit:

Daniel asks…

What is the best (least wreck my life way) to foreclose on my house?

I bought a house 2 years ago for about $450K. It is now worth about $330K. I have 2 mortgages on the house – 80/20 interest only. The payments are about $3000/month. Given that payments were interest only – there is no equity in the house, so refinancing is not an option. I was waiting for the value of this house to go back up so that I could sell and break even but it just isn’t likely to happen. I want to get rid of the house the easiest way possible, i.e. with minimal impact on my life. Does anyone know the best way to go about this? I currently live in the house which is in Florida.

John answers:

I do see one alternative. Try discussing the posibility of offering “deed in lieu of foreclosure”. This is an option that some lenders may accept if they have a large investor base (most large banks do).

What this entails is that you sign over the property to the bank. Even though you do not have equity, the bank has “equity by proxy” in the interest that you have been paying. The bank may be willing to hold the property for a while and sell it on a rebound.

Remember that even this route will create a serious ding in your credit, but by no means compares to a foreclosure or bankruptcy.

Good luck

Maria asks…

What I owe on my mortgage is now more than the home is worth. Anything I can do?

I bought a home two years ago, with no money down. I have two loans (80/20). Both loans are 30-year fixed. My property value has decreased by 20-30%.

Is there anyway to refinance or otherwise lower my payments? Luckily, my payments will never go up, but it sucks to have to pay more than what it’s worth.

John answers:

When you say refinance, you’re really talking about eliminating a portion of the debt that you owe the lender. The property may not be worth what you owe (on paper), but you did borrow the funds to purchase it. I’m afraid there’s no refinance option that will wipe away the difference between the appraised value and your loan amounts.

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