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					Refinancing
In the Current Mortgage Environment

Definition: replacement of an existing debt obligation with a debt obligation bearing different terms. From Wikipedia

• The Credit Crunch • Key questions • Finding the right loan for you • Points & closing costs • Debt Consolidation loan • Mortgage myths

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Understanding the US Mortgage Market
Home Owner

Many investment vehicles such as balanced mutual funds that you and I own contain mortgage backed securities.

$Mortgage Broker $Mortgage Bank/Servicer $Secondary Market Investor $Wall Street Securities $Investor

What Happened and Why?
• Wall Street Developed Huge Appetite for Mortgage Backed Securities • Mortgage Banks Fed the Appetite – Reckless Lending Guidelines: • No Credit, No Income, NO PROBLEM!! – Consumers Fuel the Fire By Taking on Excessive Mortgage Debt! • Homes Sell Quickly and House Prices go up, masking the problem! – Housing Market Slowed Down • Oops! Can’t Sell or Refinance… SHORT SALE & FORECLOSURE TIME!!

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How long have you owned your home? How long will you own this home? What is you current interest rate? Do you have other properties? Is this your dream home? Do you want to lower your interest rate or lower your monthly payments? • Do you have any credit issues since you purchased your home or in the last year?

• • • • • •

30 year fixed 40 year fixed *(due in 30 yrs) 15 year fixed 3,5,7,10/1 ARM’s HELOC (Home Equity Line Of Credit) Fixed Rate 2nd’s

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• Credit Score 500-850 • Full doc- W2’s Tax Returns • Stated – State the Income • Assets – Checking, Savings, Stocks, 401K

• Points have to do with the rate • Closing costs (fees) have to do with the loan • Should I pay Discount points to get a better rate?
– This should be part of the analysis conducted and explained by your loan officer. In most cases, if you are looking at it in terms of a monthly saving vs. the cost of the point your break even will be about 3 to 5 years depending on the loan program and how far you buy it down.

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• Depends on the loan amount and loan program. The higher the loan amount the more cost effective it is to do a no cost loan • No cost loan means the lender is paying your closing cost • Will you pay a higher rate? Yes • $250,000 refinance on a 30yr fixed with a rate at 6% with closing costs of $3,500 rolled into the loan. The principal & interest payment is $1519 • $250,000 on a no cost with a rate of 6.500% principal & interest payment is $1580 • The difference is $61.00, breakeven is 58 months (almost 5 years…)

• The 2% rule of thumb • Adjustable Rate Mortgages can go up anytime • Mortgage rates are tied to the prime rate or 10 Year Treasury Yields • A mortgage broker or credit union will have a better rate than a Bank • I need a down payment *Yes & No…. • I can’t buy or refinance because I have bad credit

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posted:2/13/2009
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