This is part 2 of the series, the first part is: Not Time to Refinance Your Home

Future Interest Rates With Adjustable Rate Mortgages or ARM

Right about now, when you are starting to feel better, someone will throw in your face the fact that even if your rate is good, IT COULD GO UP AT ANYTIME.  That, is the second thing that is different. 

Mortgage companies and customers found that changing the interest rate every month was a hassle for everyone and only created more opportunity for errors and losses both for lenders and borrowers.  Almost every ARM adjusts on set periods.  The most common is a mortgage loan that adjusts once per year.

In other words, if our ARM started adjusting today, we would lock in a low rock-bottom 3.25% interest rate for a full year. 

What if interest rates do rise?

They will, you can count on that.  When, and how fast, is another question.  However, consider that everyone still considers the economic recovery that we seem to be having (or may not be having, no one is really sure) is very fragile.  The last thing the Fed wants to do is raise interest rates too far, too fast, and kill off the economy again.  You can expect them to be erring on the side of NOT raising rates for once.

When they do start raising rates it will be done slowly.  The first rate increase will almost certainly be 0.25%.  When that happens, mortgage rates will rise too.  If you like, you can go refinance that day.  It should be much easier to get a mortgage since that interest rate increase will come because the economy, and the banks, are doing better, so there will be less fear in lending.  Assuming the 30-year fixed rate jumps a full 0.75% on the news, compare that to what your current non-adjusted rate is.

On the 5-year note, we have, it is 5.125%, that is roughly what interest rates might be AFTER the Fed starts raising them.  So, there is really no downside even if rates do go up, and no one is expecting them to go up much soon.

Of course, you might not want to refinance even if the Fed does start raising rates.  Why?

Because most adjustable mortgages include clauses defining the maximum amount the interest rate can go up during any one adjustment period (in our case, one-year).  In our case, the rate can never change by more than 2% from the previous year.  That means that if we did get locked in at 3.25%, the highest our interest rate could possibly rise to next year would be 5.25%.  Again, compare that to what you could refinance to today with no fees and no closing costs.

In other words, we would be set from now until June 2011 without the possibility of our interest rate increasing any amount that would justify refinancing.  In fact, through June 2012, we are guaranteed to not pay anything higher than 7.25%.  That isn’t rock-bottom, but hardly sky-high either.

Refinancing will cost you a couple thousand dollars in fees most likely which means it could take years to break even once the rate you have locked in for 30 years is actually lower than would you could have by not refinancing.  Again, by way of example, if we could get something like a 5.0% 30-year fixed mortgage for just $2,000 worth of TOTAL costs including any administrative fees or charges, it would be June 2012 before we started saving any real money on our monthly payments.  It could be 2014 before we started coming out ahead.

So, while not refinancing guarantees us a low-cost mortgage through June 2011, and an average mortgage through June 2012, actually refinancing can’t even POTENTIALLY offer us any advantage until at least 2014!

Can you guarantee that your job, desired home location, family size, and lifestyle will stay the same through 2014?  Me, neither.  We won’t be refinancing.

(Just for full disclosure, the Note I’m referencing actually adjusts at the end of 2009 making this a slightly bigger gamble, but still a pretty safe bet.  No one expects rates to rise much between now an the end of 2009.)

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ARM Interest Rates Adjusting Soon May Be Good News For Homeowners originally published at Personal Finance Blog - FinanceGourmet.com

The world of adjustable-rate mortgages isn’t very old when it comes to the general population.  Sure, the product has been around for a long time, but it wasn’t until late in the 1990s that it turned into the kind of thing your average neighbor would have.  That lack of age also means a lack of experience. 

So when media outlets start reporting about “Black Wednesday” when mortgage interest rates shot up, and then follow up it up with “news” asking if homeowners who didn’t refinance already have missed the boat and wondering if there will ever be lower interest rates again, the average person starts to worry.

Many homeowners are doing the wrong thing right now, or are up nights worrying about something they don’t need to worry about just yet, because now might just be the perfect time to NOT refinance your mortgage.

With the economic recession and collapse of the banking industry, as well as the drying up of the credit markets, the Federal Reserve Board (FED) has cut it target short-term interest rates to near zero—officially 0% to 0.25%.  Doom and gloom headlines about socializing banks, Chrysler and then GM bankruptcies and of course, plenty of stories about how bad the lending business is may have put the silver lining about your adjustable rate mortgage in your blind spot.

If you have an adjustable rate mortgage that will start adjusting it’s interest rate in the near future, you may have been waiting with dread for that date to arrive. This likely applies to you if you picked up a 5-year ARM toward the end of the real estate bubble, or a 7-year ARM or 10-year ARM earlier on.

The conventional wisdom has always been to refinance out of your ARM before the interest rate begins adjusting.  The idea is that you don’t want your mortgage interest rate behaving like a credit card interest rate and changing your mortgage payment every month.  But, two things have changed so much that the conventional wisdom might actually steer you down the wrong path.

ARMs Adjusting Interest Rate Lowest Ever

While the Fed has struggled to keep long-term interest rates on new mortgages as low as it would like, it does not have that problem in one area.  Most existing ARMs are tied to interest rate index.  Usually, the adjustable rate mortgage interest rate is equal to that index plus a specified amount.  The index your interest rate is tied to and the interest rate spread added to that rate are spelled out in your mortgage documents, or more specifically, in your “Note.”

  For example, a 5-year adjustable rate mortgage we have on a property is set based on the weekly yield on the United States Treasury securities adjusted to a constant maturity of one year.  That sounds like a nightmare, and it probably is if you actually have to calculate it buy you don’t since the Federal Reserve Board publishes that number daily.

The United States Treasury Securities Adjusted to Constant Maturity of One Year index is 0.50%.  Actually, it fluctuates daily and for the end of May was 0.49%.  It’s been lower the first few days of June, not higher.

In other words, on this particular mortgage, if our interest rate were to adjust today, our new adjustable interest rate would be 3.25%.  I dare you to find a mortgage you can refinance into with that interest rates with no closing costs or loan fees of any kind, because when it comes to a mortgage you already have, you pay zero fees, with no fine print!

What if mortgage rates go up after you decide not to refinance

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Time To NOT Refinance Your Mortgage originally published at Personal Finance Blog - FinanceGourmet.com

It was with much fanfare last month that Congress and the Obama administration passed laws putting into effect government programs to help American homeowners with their mortgages.  Both The Emergency Economic Stabilization Act, and The American Recovery and Reinvestment Act were front page news all over the country. A lot of this publicity was due to the fact that Americans have started to perceive the government as helping out Wall Street and big banks more than they are helping ordinary taxpayers and homeowners who did nothing wrong during the housing bubble and subsequent market collapse and banking collapse.

However, the same publicity also made it easier for scammers and dishonest marketers to take advantage of people’s hopes by pretending to have something to do with the government programs when, in fact, they are either outright scams to steal your money or steal your identity, or they are mortgage brokers or mortgage companies that have nothing to do with the government mortgage aid programs trying to insinuate that they are part of those programs.  Unfortunately, many people are falling victim to these con artists and their tricks.

How To Protect Yourself From Scams, Thieves, and Con Artists Using Government Mortgage Aid Lies

First, understand the facts about how people take advantage of these government mortgage aid programs. There ARE NO EMAILS of any kind being sent to homeowners by any government agency or banking institution associated with the programs.  None, zero, zip, nadda.  Any email that you get of any kind, from anyone, no matter how official sounding or looking is a scam.  Delete it immediately.

Second, there are no checks being issued to homeowners.  Some mailings include checks that ask you to call a toll-free number for some official sounding reason.  When you do, they will ask you to deposit the check, but wire some money to another account for some reason.  This is a scam.  The check will bounce and your wire transfer money will disappear.  NO CHECKS ARE BEING SENT TO HOMEOWNERS by the government or banks.  Any and all help you might be eligible for will come in the form of a refinanced loan or a load modification.  Either way, there is no check involved.

Third, is junk mail designed to look like it has something to do with the government’s mortgage aid programs, but carefully worded to actually just mislead you into thinking this without actually saying it.  These come from banks and mortgage brokers and mortgage companies.  They are nothing more than junk mail hoping to get you to refinance with them, most likely at a higher interest rate and with higher closing costs than you could get elsewhere.  There is no proactive attempt of any kind going on to contact homeowners in this way.  Anything that is sent via 3rd class mail, or bulk mail of any kind is clearly not from the government or banks.  It is junk mail, throw it away (actually, shred it).  Even mail sent first class is most likely fake junk mail.

Use these guidelines to see if the offer you have received MIGHT be legitimate.  You will still have to follow up with your mortgage company, but if any of these apply, don’t even bother, what you have gotten is phony.

• Only Mortgages backed by Fannie Mae and Freddie Mac are eligible.  If yours isn’t, there is no aid program for you.
• The official title of the Government Refinancing program is “The Home Affordable Refinance” program.  Scammers will carefully avoid using those exact words to avoid fraud liability.The overall program name (both loan modification and refinance) is “Making Home Affordable”, again, scammer will avoid the exact wording.   If those exact words are not used, then you are holding onto a scam.
• There is no charge, no fee, and no up front payment of any kind.  Anything asking you to send money is a scam.
• There is no need for you to send your personal information to anyone.  The government and the banks already have your name, address, and social security number.  There is no need to “verify” this information for any reason.  Anyone calling on the phone, or any mailing asking you to reveal your social security number for any reason including verifying your identity is a scam.

The best way to avoid scams is to look-up your lender’s phone number independently (do not use the number provided which obviously rings where the scammers want it to ring) and call them to ask if you qualify.

Remember, there are no government mailings, government phone calls, or government emails of any kind.  Anyone saying differently is a con artist, fraud, and liar.  Hang up, shred, or delete immediately and save your money and your identity.

Here is the latest OCC Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams

Copyright 2009 – Exclusively Published at FinanceGourmet.com – ArcticLlama, LLC

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Government Mortgage Help Programs Scams and Deceptive Marketing and Mailings originally published at Personal Finance Blog - FinanceGourmet.com

When considering refinancing your home mortgage, the first step is to get all of the details on what you have now.  Sure, you have vague numbers in your head, but that won’t help you answer all of the loan application questions, or make a real hard-numbers based calculation about the value of refinancing.  What exactly do you need to know before you dive into looking for low interest rates and refinancing your mortgage?

Required Information Before Researching Interest Rates and Refinancing

• Current Balance of Home’s First Mortgage – Not a ballpark, an exact number according to your last statement.
• Current Balance of Home’s Second Mortgage or HELOC – Again, the number from the last statement.
• Current Interest Rate – What are you paying on your mortgage right now?
• ARM or Adjustable Interest Rate Features – When does your rate go up? (The actual date, not just the year.)  How much can it go up in the first year?  The second year?  Each year after that?  Is there a floor (minimum)?  Is there a ceiling (maximum)?
• When Did Your Mortgage Start? – What day did you close on?
• Current Home Value? – Check Zillow and Trulia to get a ballpark.  Print those pages out so you have them for reference.  Keep in mind that these values are based on public information at your county’s records office, so they won’t include any improvements you have made to the house.  Don’t worry about it too much unless it was something major.  This is just for your calculations not for the application yet.
• Credit Score? – If you don’t know, call your banks first and see if one of them will tell you what it is.  Make sure they tell you the date it is from too.  Many banks and credit unions will get your credit score on a regular basis both to keep your records up to date and to be able to offer you services you might qualify for.  So, a teller or loan officer might just be able to pull it up for you as a courtesy.  If not, put looking into a better bank on your to-do list.

Ok, now you are ready to get started with some research.  Having this information up front will not only make your research easier but also more accurate.  It is a huge let down to do a bunch of research based on “remembering” that you mortgage balance is $315,000 when it is actually $350,000, only to find out you will have to start over with the real numbers, or worse, just go with the wrong research because you don’t want to start over.

One important thing to remember is the limit for Jumbo mortgages.  Right now, this number is $415,000 in many places, but that number is adjusted based on where you live and the cost of homes there.  For example, this number will be much higher in San Francisco. It is important to know this number for your area because the rules change if you are getting a jumbo mortgage versus a regular mortgage.

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How To – Refinancing a Home Mortgage Steps and Tips originally published at Personal Finance Blog - FinanceGourmet.com

Ok, it’s time to look at refinancing the old homestead’s mortgage.  I’ve been putting it off because of holidays and the fact that rates can still go lower even though the Fed recently cut rates to zero.  Now, it’s time to take a serious look at refinancing and how it might work out for my family.  I’ll be posting a series of articles here on Finance Gourmet to help guide you through the process.  By writing these articles in “real time” with my refinance adventure, you can see the whole process from A to Z and use it as a guide for your own refinancing now, and in the future.

To make sure you don’t miss out, I recommend grabbing the RSS feed.  If you aren’t familiar with RSS or “feeds”, they are basically a way to get the article pulled from here by a RSS reader which is just software that goes and gets articles from the websites you ask it to watch.  That way, you don’t have to remember to open your bookmarks to get back here.  It is kind of like the old idea of subscribing to emails that updated you on website content, but this way, all of your articles are kept separate and your inbox does get filled up with article postings from a bunch of web sites.

If you have never used RSS feeds before and you have a Google account, you can just use Google’s feed reader.  That way, you don’t have to install any software, and if you decide to junk the whole thing, you can just delete your feed reader subscriptions and you’re done.

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2. How To – Refinancing a Home Mortgage Steps and Tips

Refinancing the Mortgage to Take Advantage of Lower Interest Rates originally published at Personal Finance Blog - FinanceGourmet.com