Tuesday, December 2, 2008

5% 30 Year Fixed Rate, But My Value Is Too Low?

With the recent major improvement in the Bond Market Yields finally translating to improved interest rates on long term fixed rate conventional financing, there has been a bit of a flurry of activity here at Quality Home Loans in Southern Oregon, trying to help clients take advantage of this boon.

Keeping track of the homeowners who may benefit from refinancing as opportunities present themselves is a part of any professional, experienced mortgage consultant’s duties. Since the public doesn’t catch wind of market moves until the media reports come out days/weeks later, the average person often misses the boat by the time they pick up the phone to call to see about getting a lower interest rate on their home loan. Maybe your profession has nothing to do with the finance/mortgage industry, so you go to the professionals who do follow this.

Seeing the lower trend in some mortgage programs’ interest rates, the past several days have been spent checking on value ranges for homeowners who would save enough to warrant the expense associated with refinancing. Then, it’s time to prepare a Good Faith Estimate and Truth-In-Lending Disclosures on the proposed programs for those homeowners and investors who could gain enough interest savings to offset their closing costs.

Unfortunately, many property owners’ values have descended. Those that have tapped in to their equity before may find themselves “underwater” – owing more on their mortgage(s) than their property is worth in today’s market. Others may have purchased their home within the past 1-5 years, and although they haven’t touched their equity by refinancing or taking out a 2nd loan/line of credit, they may be located in areas where foreclosures are prevalent causing the market values to be set by these distressed sales.

I am working with two such homeowners who purchased their homes a year ago and want to get a lower interest rate and eliminate mortgage insurance. Even though the mortgage insurance may be tax deductible for them (this ruling is subject to change), and they got good deals at the time they purchased their homes, the values have either decreased slightly or stayed the same. Having the required mortgage insurance in the equation makes refinancing too costly.

So, the one gentleman who wanted 5% with no mortgage insurance would have to be quoted 5.25% (apr 5.412%) on his conforming 30 year fixed rate $227,000 mortgage – and he may or may not get the appraised value needed to even do this, since his appraisal would need to come in at the high end of the range of sales comparables available today.

But, another family who has owned their home since 2001, has 35%+ equity even after taking out a 2nd to consolidate student loans a year ago WILL be able to take advantage of the really low interest rates we’re seeing right now. Yet another, who has owned their rental since 2003 is sitting right on the edge of whether the numbers “pencil out” or not, so they’ll have to decide if anteing up the appraisal fee to find out is worth while.

If you are wondering if it makes sense for you to refinance your home/property in Oregon or California, call or contact us online for a free consultation.

See you at the closing table!

Karen Cooper – OR/CA Mortgage Consultant – www.Quality4Loans.com

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