Should I Choose Adjustable Refinance Mortgage Rates?

Mortgage refinance rates are rising and if you’re in the market for a new home loan the temptation for many loan officers is to push home loans with adjustable interest rates. Can you limit your risk and still save money refinancing with an adjustable rate mortgage? Here are several tips to help you make an informed decision on your next home loan despite rising mortgage refinance rates.

Mortgage Refinance Rates Are Rising Fast

Have you been procrastinating refinancing your home because you didn’t want to pay the closing costs? Over the past several weeks mortgage refinance rates have jumped nearly one percent across the board. Bank of America is currently showing 30-year fixed mortgage refinance rates at 4.625%, up from just under 4% two weeks ago.

This is a pretty dramatic increase considering two months ago you could have locked in three percent for 30-year fixed mortgage refinance rates.

Interest rates on 15-year fixed rate mortgages are also up, most lenders are quoting mid three percent, where a month ago you could lock 2.5%. The bond market is tanking which is bad news for mortgage refinance rates.

Things aren’t much better for adjustable mortgage refinance rates. Bank of America is quoting 3.375% for their 5/1 ARM, a popular choice compared to 4.625% for 30-year fixed.

What Are You Getting With A 5/1 ARM?

What does that 5/1 Adjustable Rate Mortgage mean? The first number designate the fixed rate period. If you locked Bank of America’s 3.375% today your mortgage payment would be fixed for the first five years.

The second number is the frequency that the interest rate and your payment amount resets after the fixed rate period. With the 5/1 ARM your payment resets every calendar year after the five year fixed period.

Many loan officers are pushing 5/1 ARMS right now because they’re not closing much with fixed rate mortgage loans at 4.675%.

Rising Mortgage Rates Means Higher Payments

If you lock a 5/1 ARM today you might be happy with the 3.357% interest rate for the first five years, but when your ARM starts resetting you could be in for payment shock.

The point here is the mortgage payment you could have gotten two months ago is significantly lower compared to the fixed mortgage refinance rates you’re locking today. This higher payment makes it much more difficult to break even recouping your closing costs to the point where mortgage refinancing may not make sense.

The Mortgage Refinance Rule of Thumb

Should I refinance my mortgage? Will your payment go down enough to recoup your out-of-pocket expenses? The refinance rule of thumb used to state that you shouldn’t refinance unless mortgage refinance rates were 2% lower than what you’re currently paying. This rule is too broad and leaves a lot of cash on the table.

You can use a simple mortgage calculator like this one to approximate your breakeven point. Enter the mortgage refinance rates you’re being quoted and your desired term-length to calculate your new payment amount. The difference between your old payment and the new one is your monthly savings.

Simple Mortgage Calculator

Loan Amount: Years: Interest Rate:

Annual Taxes: Annual Insurance:

Monthly Payment =

Divide the amount you’re paying at closing by the amount you’re saving each month and you’ve got the number of months it’s going to take you to recoup your out-of-pocket expenses. If you break even in a reasonable amount of time, (reasonable is subjective for everyone) then paying for a new home loan probably makes sense.

If you do any amount of mortgage refinance rate shopping you’re going to find that lenders have quietly switched to quoting 5/1 or 7/1 ARMs. Why are they doing this? These rates seem more attractive than 30-year fixed mortgage refinance rates meaning they close more home loans.

Who wants to refinance at 5%? Unless there’s no other choice mortgage refinance rates on 5/1 ARMs are an attractive alternative.

How to Shop Smartly for Your Next Home Loan

If you’re considering refinancing with a 5/1 or 7/1 ARM over current 30-year mortgage refinance rates, you should consider the risk of payment shock five or seven years down the road. Most financial analysts are predicting mortgage rates will continue to rise over the next ten years which could leave you with payment shock and no way of lowering your payment.

While locking in 30-year fixed mortgage refinance rates doesn’t sound as good as it did two months ago, knowing that your payment won’t skyrocket in five short years could give you a lot of peace of mind.

Is your loan officer quoting you a 5/1 or 7/1 ARM because the rates are better? If so you might want to question their motivation. Do they have your best interest at heart or are simply looking for a commission at a time when many loan officers aren’t closing refinance loans.

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You can learn more about paying less closing on your next home loan from today’s best mortgage lenders by checking out my Underground Mortgage Videos.

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Here’s a quick sample to help you get the lowest home refinance rates without overpaying lender fees…

Warning: Avoid Paying For Mortgage Refinance Rates

If you’re shopping for today’s lowest mortgage refinance rates you’ve already encountered a deceptive fee lenders use to boost their profits at your expense. If you fall for this fee it’s going to be more difficult, even impossible to break even on your out-of-pocket expenses. Here are several tips before you refi to help you avoid paying for today’s best mortgage refinance rates.

Save Thousands On Mortgage Refinance Rates

Refinancing with today’s best mortgage companies can slash hundreds of dollars from your monthly housing payment. The problem with paying for mortgage refinance rates is that it boosts your out-of-pocket expenses and if you’re unable to break even you’ll be losing money no matter how low your new interest rate.

What is this unnecessary fee you’re paying for mortgage refinance rates that I’m talking about?

Paying unnecessary lender discount points robs you of the benefit you’re getting from mortgage refinancing.

Spend any amount of time shopping for mortgage refinance rates and you’ll find that lenders quote interest rates including discount points first. If you’re not already familiar with discount points this is a form of prepaid interest you pay at closing to lower your mortgage refinance rates. One discount point is one percent of your home loan and typically lowers your interest rate by .25%.

Should You Pay Discount Points?

Refinance rates are at 60 year lows and keep falling lower. Should you pay the lender a fee to get even lower mortgage refinance rates? For many homeowners who do not have cash on hand this isn’t a question; however, many make the mistake of thinking discount points put them ahead of the game.

You can answer this question for yourself by approximating the break-even-point for recouping your closing costs. You can do this by dividing your total closing costs including points by the amount your monthly payment will go down each month. This gives you (approximately) the number of months it’s going to take to break even on your out-of-pocket expenses before you’ll benefit from today’s low refinance rates.

Notice that I say approximate because this calculation is only valid if you keep the same term–length or go shorter. If you choose a longer term length like going from a 15-year home loan to a 30-year loan you’ll never break even due to the higher finance costs.

Here’s an example to illustrate my point:

Suppose you’re refinancing your home for $250,000. Your old payment based on an interest rate of 6.5% was $1,580 per month. The lender is quoting you mortgage refinance rates at 4.0% with half a point paid up front. This would lower your monthly payment to $1,200 per month at a cost of $1,250 for that half point. This is paid in addition to average closing costs of $5,000.

Is it worth paying $1,250 extra for the discounted rate?

If you don’t pay discount points in this example the refinance rate will be 4.5% with a monthly payment of $1,266. That’s a difference of $66 per month. It will take you an additional 18 months to break even recouping the discount points you’re paying. Since it’s going to take you 16 months to break even recouping your $5,000 in closing costs, that’s a total of 34 months.

Is your cash better spent on other things? Considering that the average homeowner refinances every four years that’s up to you to decide.

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You can learn more about paying less for mortgage refinance rates from today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started with the lowest refinance rates without unnecessary points or fees…

Mortgage Rate Quotes Dirty Secret Revealed

Searching the web for mortgage rate quotes hoping to grab one with the lowest interest rate without paying junk fees or markup? There are a few things you need to know about the mortgage rate quotes you find online if you’d like to avoid paying too much. Here is one of my best tips to help you find the lowest mortgage rate quotes without paying unnecessary markup or junk fees.

Mortgage Rate Quotes Online

Refinancing your home loan is no different than any other purchase you’ll make; there are people lurking at every corner trying to make a buck at your expense. Home loans in today’s market are retail products not unlike kitchen appliances. There’s always someone in the middle marking that Kenmore appliance up to get a commission. This normally isn’t a problem as retail markup is a fact a life; however, the problem is that you’re already paying the person arranging your home loan a perfectly reasonable origination fee for their work…AND they’re helping themselves to an “extra” commission at your expense.

What am I talking about today? It’s a subject that makes most home loan originators hot under the collar and with good reason. This unscrupulous markup of your mortgage rate quotes can double, even triple their commission on your home loan. Here’s how this scandalous robbery works.

Mortgage Rate Quotes & Yield Spread Premium

The markup I’m discussing today applies to brokers. Banks also markup up their mortgage rates for different reasons and thanks to a loophole in the Real Estate Settlement Procedures Act your bank isn’t required to disclose markup or profit margin on your loan. It makes sense not to get mortgage rate quotes from a lender that doesn’t have to play by the rules right? This is why I recommend avoiding banks when it comes to shopping for mortgage rate quotes to purchase or refinance your home.

What is Yield Spread Premium? Simply put Yield Spread Premium is a commission paid by lenders to loan originators who lock and close their mortgage rate quotes with a higher than necessary interest rate. What do I mean by higher than necessary? The lender behind your home loan has an interest rate they will approve your for on any given day. Both your lender and broker know what this figure is; however, the broker marks up your interest rate based on what they think you and other homeowners will overpay to get this second commission from the lender. That’s right, for every .25% that you agree to overpay for your next home loan the broker pockets an additional one percent of your home loan amount form the lender…at your expense I might add.

This unnecessary markup of your mortgage rate quotes drives up your payments and leaves you with less cash at the end of the month while your broker laughs all the way to the bank. There is good news for you here today; you can avoid this unnecessary markup of your mortgage rate quotes and walk away from the table with a wholesale interest rate once you find the right broker to arrange your next home loan. There are honest, hardworking brokers out there that don’t take advantage of their customers by marking up their mortgage rate quotes and lacing them with junk fees. You just need to know where to find one.

You can learn more about getting mortgage rate quotes that don’t include unnecessary markup or junk fees by checking out my free Underground Mortgage Refinancing Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c

Here’s a quick sample to get you started uncovering your broker’s dirty secret so you’ll keep more of your hard earned cash after paying your home loan.

30 Year Mortgage Rates

mortgage rates 30 Year Mortgage RatesIf you are in the process of refinancing your home and are searching for information about mortgage rates there are several things you need to know about the rate quotes you receive. Most homeowners don’t realize that 90% of the rate quotes they receive from mortgage brokers and on the Internet include commission based markup included to make someone money from your loan. Understanding mortgage quotes and learning to recognize this markup will help you avoid paying too much for your next mortgage loan.

Today’s 30 Year Fixed Rate

The 30 year fixed mortgage rate has been creeping up slightly to 6.0%. This rate does include Yield Spread Premium which is intended to give a commission to the person arranging your loan. Yield Spread Premium by itself is not necessarily a bad thing; only when it is abused could you wind up paying hundreds of dollars a month unnecessarily.

What is Yield Spread Premium?

Yield Spread Premium is a percentage of your loan amount created when the mortgage company or broker arranging your loan locks and closes with a higher than market interest rate. Suppose your lender approves you for a mortgage rate of 6.0% but the broker closes you at a higher rate of 6.5%. This creates .5% of Yield Spread Premium and brings the broker a commission of 2% of your loan amount. Did your mortgage broker overcharge you? It depends on how your loan was structured and whether or not the broker told you they were marking up your mortgage rate.

Mortgage Broker Compensation

Brokers are compensated in two ways. They can charge you an origination fee for their part in arranging your loan or receive compensation from the lender with Yield Spread Premium. If the broker is charging you an origination fee for their services a reasonable fee to pay is 1-1.5% of your loan amount. Mortgage brokers typically receive one percent of your loan amount for every .25% your loan closes about the interest rate offered by the lender. If this is paid in lieu of an origination fee or used to pay your closing costs Yield Spread Premium can be a good thing; however, it is often abused when the broker charges you an origination fee and pockets Yield Spread Premium without your knowledge.

You can learn more about refinancing your home loan without paying too much in broker fees including ways to recognize and avoid lender junk fees by registering for my free video tutorial.

The Hidden Cost Of Mortgage Points When Refinancing

Points are one of the most misunderstood aspects of mortgage loans.

In the simplest definition mortgage points are a percentage of your loan amount due at closing for one of two possible reasons.

Here are the basics you need to know about mortgage points and how you can decide if paying them is worthwhile when refinancing your home mortgage loan.

Types of Mortgage Points

Mortgage points come in two flavors. One point is equal to one percent of your mortgage amount and is the fee you’ll be required to pay at closing. There are the discount points you pay to the lender in exchange for a lower mortgage rate and the origination points you pay to the broker for their part in arranging your loan. Brokers and lenders do not always require that points be paid; however, some lenders hide their point requirements in the fine print hoping to distract you with an unnaturally low mortgage rate.

If you don’t agree to pay the points required for that low mortgage rate you’ll find the actual interest rate is often much higher than the going market rate. This is a common bait and switch tactic used by mortgage lenders to boost their profits. Fortunately once you understand how points work this is an easy scam to avoid.

Should You Pay Mortgage Points?

Deciding whether or not paying points to the lender is in your best interest depends on how long it will take you to recoup the expense based on the lower monthly payment you are getting. We’ve all seen the commercials on television promising insanely low rates with a lot of very small print flashed up on your screen. If you pause the commercial and squint you can just make out that this lender requires two points at closing to qualify for this low rate. Does it make sense to pay the fee?

You can easily determine this with a simple mortgage payment calculator. First compare the lower payment with points to the higher payment without points. The difference between the two payments is your monthly savings. Suppose you were refinancing a $200,000 loan with this lender. Two points would amount to $2,000 due at closing. If the monthly payment is $35 lower it will take you almost five years to recoup this expense. If you plan on staying in your home for the long term paying points can be beneficial; however, if you sell your home before this you’ll be losing money by paying points.

What About Origination Points?

Mortgage brokers often charge origination points for their part in arranging your loan. Not every mortgage charges origination points as brokers can receive compensation from the lender behind your loan. If your broker is charging you a fee for arranging your loan a reasonable fee to pay is 1-1.5% of your loan amount.

You can learn more about your mortgage refinancing options including costly mistakes to avoid by registering for my free video tutorial.