Freddie Mac Relief Refinance MortgageSM Scenarios
These examples are for illustration only. Actual terms may vary based on market conditions and borrower circumstances.
Scenario 1: Fixed-Rate to Fixed-Rate:
Here’s how Bob and June used a Relief Refinance Mortgage to reduce their monthly principal and interest (P&I) payment by nearly 12% after their house lost 22% of its value. When they bought their home two years ago, Bob and June put down 25% of the $400,000 sale price and financed the rest with a 30-year fixed-rate mortgage at 6.25%. Although they’ve paid their original $300,000 mortgage down to $292,750, Bob and June were unable to refinance into a lower rate because the current market value of their home dropped 22% to $310,800. That changed their loan-to-value (LTV) ratio from 75% to 95%. In today’s market, few lenders are making loans to borrowers with such high LTV ratios. And, because Bob and June’s equity -- the difference between the loan amount and the value of the home -- is now less than 20% of the home’s value, Bob and June would need private mortgage insurance, which would increase their total monthly housing payment. But, under the Relief Refinance Mortgage offering, borrowers can have LTV ratios up to 105%, so Bob and June’s higher LTV ratio was not a barrier. They were also able to finance $2,500 in closing costs, resulting in a new loan amount of $295,250, and did not need to purchase mortgage insurance because there was no mortgage insurance on their original loan. Bottom line: Bob and June’s mortgage servicer approved them for a 30-year fixed-rate Relief Refinance Mortgage at 5.25%, despite the drop in their home’s value, reducing their mortgage payment by 11% and saving them $217 a month.
Mortgage Feature Purchase Price/Value Loan Amount Loan-to-Value Interest Rate Mortgage Term Monthly Principal & Interest Payment
Notes: 1. Property value decline of 22.3%
Original Loan Data $400,000 $300,000 75% 6.25% 30 years $1,847
Relief Loan Data $310,800 (1) $295,250 (2) 95% (3) 5.25% 30 years $1,630 (4)
2. Loan amount includes 2 years amortization and $2,500 toward closing costs 3. No mortgage insurance required because the original loan did not have mortgage insurance 4. Monthly payment reduced 11.7%
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Publication Number 809 April 2009
The information in this document is not a replacement or substitute for information found in the Single-Family Seller/ Servicer Guide and/or the terms of your Master Agreement and/or Master Commitment.
Scenario 2: Adjustable-Rate Mortgage to Fixed-Rate Mortgage
The introductory 3.5% rate on the Bedford family’s 30-year adjustable-rate mortgage was about to expire and, as a result, their monthly payment was about to increase by 25%. Their efforts to refinance were frustrated when a nearly 17% drop in their home’s value drove their LTV ratio from 90% to 105%. The Bedfords were able to secure a Relief Refinance Mortgage, which allows LTV ratios up to 105%. Their original 90% loan currently has mortgage insurance because they put down less than 20% when they purchased their home. With the Relief Refinance Mortgage they are allowed to transfer their mortgage insurance at the same premium rate even though their LTV ratio has increased to 105%. Keeping the same policy will allow the new mortgage payment to be considerably less than if they had to obtain new mortgage insurance — if it was even available. The Bedfords chose a 30-year fixed-rate Relief Refinance Mortgage to eliminate concerns about future mortgage payment increases. Although the Relief Refinance Mortgage increased their monthly payment by 20.05%, that was still less of an increase than there would have been under their adjustable-rate mortgage. Bottom line: Because the monthly payment increase was more than 20%, the Bedfords were required to verify their income and employment and the lender had to obtain a new credit report to show they could succeed with the new mortgage payment. Based on this information the lender was able to determine the Bedfords had an acceptable credit score (above 620) and their income was sufficient to cover the new payments.
Mortgage Feature Purchase Price/Value Loan Amount Loan-to-Value Interest Rate Mortgage Term Monthly Principal & Interest Payment Monthly Principal & Interest Payment at next adjustment to 5.5%
Notes: 1. Property value decline of 16.5%
Original Loan Data $200,000 $180,000 90% 3.50% Teaser Rate 30 years $808 $1,010
Relief Loan Data $167,000 (1) $175,475 (2) 105% (3) 5.25% 30 years $970 (4) (5) N/A
2. Loan amount includes 2 years amortization and $2,500 toward closing costs 3. Mortgage insurance coverage of 25% transfers to new loan. The cost of the MI is added to the monthly principal and interest payment on the new mortgage just as it was added to the P&I payment on the original loan. 4. Monthly payment increased by 20.05% 5. Due to payment increase of >20%, this loan requires: New credit report Verification of borrower(s) income amount and source Minimum acceptable Indicator Score of 620 Maximum monthly debt-to-total monthly income ratio of 45%
Scenario 3: Super Conforming Fixed-Rate Mortgage to Super Conforming Fixed-Rate Mortgage
Herb and Lisa had been unable to find a way to refinance their $480,000 fixed-rate mortgage at 7.25% because their $600,000 house has lost 25% of its value. The drop in value made it difficult to find financing in the current market for two reasons: 1) the loan amount was now larger than the $450,350 value of their home; and 2) their equity stake in the property was now less than 20%, so they would need mortgage insurance. Their servicer helped them overcome both obstacles and reduce their monthly mortgage payment by approving them for a Relief Refinance Mortgage. The Relief Refinance Mortgage carried a lower interest rate (6.50%), which reduced their monthly mortgage payment by $285. Although the Relief Refinance Mortgage now has a 105% LTV ratio, no mortgage insurance was required because there was no mortgage insurance on their previous loan. Bottom line: Herb and Lisa faced some of the biggest hurdles for borrowers who want to save money by refinancing their mortgage: lower home prices, higher LTV ratios, and difficulty finding private mortgage insurance. Their Relief Refinance Mortgage enabled them to clear all three and save $285 a month.
Mortgage Feature Purchase Price/Value Loan Amount Loan-to-Value Interest Rate Mortgage Term Monthly Principal & Interest Payment
Notes: 1. Property value decline of 24.9%
Original Loan Data $600,000 $480,000 80% 7.25% 30 years $3,274
Relief Loan Data $450,350 (1) $472,850 (2) 105% (3) 6.50% 30 years $2,989 (4)
2. Loan amount includes 2 years amortization and $2,500 toward closing costs 3. No mortgage insurance required because the original loan did not have mortgage insurance 4. Monthly payment reduced 8.7%