Bill Kamboukos

Interest Rates Move Lower, But Is It Time To Refinance?

Answers To Commonly Asked Refinance Questions

Should my new rate be 2 percent lower than my current rate to make it worthwhile?

The quick answer to this is, no. You do not have to wait until mortgage interest rates drop by 2 percent before you consider refinancing your mortgage.

The decision to refinance your home is dependent on many things, including how long you plan to be in the house, how much lower the interest rate will be on your new loan, the closing costs for the new loan, your equity position in the home and whether you plan to do a cash-out refinancing.

With a regular refinance, you're trying to take advantage of lower interest rates to lower your monthly payments. If you have enough equity in your home, you may even have a side benefit of being able to stop paying private mortgage insurance.

In ordered, to take advantage of a lower rate you'll have to close on a new loan and pay the closing costs associated with that loan. This is true even if you opt for a no-cash or low-cash closing. With a no-cash or low-cash closing, the costs still are there; they just are paid for either with a higher interest rate or are included in the principal balance of the loan. (There's truly no such thing as a free lunch.)

If you don't plan on being in the house very long, then the lower payments associated with the refinancing won't cover these closing costs. So you must weigh the options, but the bottom line is that you do not need a 2 percent interest rate deduction to make refinancing worthwhile.

Should I refinance with my current lender or use the services of a mortgage broker?

The question of using your existing lender versus a mortgage broker is one that many homeowners looking to refinance have. On one hand, the borrower believes that having an established relationship and paying their mortgage on time will allow them to receive better terms and fees for their lender to keep their business, rather than lose it to a refinance. This same notion is often also perceived by many borrowers in relation to a bank or credit union that they may have a relationship with as well. The unfortunate situation in today's economic environment is that this does not necessarily mean better rates and fees.

A mortgage broker has the ability to shop the mortgage around for you, especially in an environment of lower rates and find the best terms on a mortgage for your specific situation. This will allow you in the end to see all possible options available and not just the options available at one lender. It is however important to make sure you are dealing with a reputable mortgage brokerage with professionals such as Strategic Mortgage.

What is the difference between the rate and the APR?

Another common question received is the difference in the actual interest rate and the APR. The annual percentage rate adjusts the mortgage interest rate to reflect estimated closing costs, including points paid at closing and mortgage insurance.

The Truth in Lending Act requires lenders to provide the APR when advertising a mortgage loan and provide prospective borrowers with the loan's APR upon request. APRs aren't perfect, since closing costs are estimated and the lender can round off by up to a quarter-percent.

Therefore, the APR is not your actual interest rate paid on the loan, but factors in the cost of obtaining a loan and lists that as an interest rate as well on the loan disclosures.

If I have low rate on an adjustable rate mortgage should I refinance to a fixed rate now?

Many homeowners with lower rates on their adjustable rate mortgages have held off refinancing to fixed rates as interest rates have hovered around 6%. Now with rates a full percentage point lower, many homeowners are wondering if now is the time to refinance into a fixed rate mortgage for the long term. The answer, more often than not, is yes.

With interest rates at near historic lows, now may finally be the time to refinance to a fixed rate. Many homeowners have been content to take a wait and see approach and while some believe that rates may decline lower, if housing and the mortgage market has taught us anything, it is to expect the unexpected. Now may be your best opportunity to lock into a fixed rate for the long term and refinance out of your adjustable rate mortgage.

For more information to questions on refinancing in the current market, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

Week In Mortgage & Real Estate:

FDIC Plan - Round 2

In its first go round, the Bush administration denied enactment of FDIC Chairwoman Sheila Bair's controversial loan modification plan, however now lawmakers are taking matters into their own hands.

However new legislation has now been introduced incorporating Bair's proposal to systematically modify loans and provide a government guarantee against default. The measure is estimated to ultimately save 1.5 million homeowners from foreclosure and would cost $24.4 billion, which Waters would take from the $700 billion financial industry bailout bill.

The new bill however will likely have to be reintroduced when the new Congress takes office next year unless similar measures are worked into any new bailout proposals. Several banks and mortgage finance companies Fannie Mae and Freddie Mac have recently put their own loan modification plans into place. And as part of its federal bailout, Citigroup must start modifying loans in accordance with Bair's guidelines.

Meanwhile, the number of homes falling into foreclosure is rising daily. A record 1.35 million homes are in foreclosure and a historic high 6.99% of borrowers are behind on their payments, the Mortgage Bankers Association reported last week.

Bair has long been a proponent of systematic loan modifications, and has put her plan into action at IndyMac, which the FDIC took over in July. Officials had modified 5,000 loans as of mid-November.

So What Is The Plan?

First, housing payments for delinquent borrowers two months or more late would be reduced to 31% of gross monthly income. To get there, mortgage rates could be set as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended to as long as 40 years.

Each loan will be tested to see whether it is more beneficial to modify or to foreclose.

Second, to encourage servicers and investors to participate, the government would share up to 50% of the losses if a borrower who had been helped ended up in default anyway. The risk of re-default had been one obstacle to getting lenders on board with systematic modification plans. This guarantee takes the program a step further than what's currently being done.

In addition, the FDIC would pay servicers who process mortgages $1,000 for each re-worked loan.

As we enter the end of the year, this plan is one of a host plans that may be unveiled when congress reconvenes. In this market it appears that only certainty is uncertainty. Right now as interest rates remain low, many are waiting on the sidelines for lower rates, but there are no guarantees that we may see these. In addition, other borrowers are waiting for government mortgage relief and that may not come anytime soon either. For more information on what the right move for your current situation as a home owner or potential home owner may be, do not hesitate to contact us.

For more information on these programs and more, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

This Week In Mortgage & Real Estate:

Interest Rates Drop, But How Low Will They Go?

As we move ahead in another week in the ever changing mortgage and real estate market, we have many new events to consider. Perhaps the biggest story of this past week however, has been the drop in interest rates that we have seen on mortgages. Rates have dropped to their lowest rates in year

4.5% Interest Rates?

The buzz word this past week has been that of 4.5% interest rates, through possible government intervention. While the Federal Reserve has stepped up and said that they will purchase a large sum of Fannie Mae and Freddie Mac backed mortgages. And the treasury department has indicated that they would like to do something to keep interest rates low. We also know the following:

1) The Treasury doesn't set mortgage rates -- Wall Street traders do. Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
2) Treasury intervention doesn't guarantee low rates. Mortgage Rates may rise and fall based on speculation, but the treasury cannot set a standard rate on long term mortgages.
3) No details about the plan have been confirmed. Meaning that everything you've heard about 4.5 percent rates is a guess at this point.

While the latest talk from the government has pushed interest rates lower on mortgages in the short term. There are no definitive plans or actions set to back a 4.5% interest rate on long term mortgages. The market continues to change on a daily basis and we may see a new plan unfold in the near future. On the other hand, if information comes out that the talk of 4.5% interest rates is just that, and then rates may move higher.

More Cuts Coming To The Prime Rate?

The Prime Rate, which home equity loans are based upon, as well as many consumer credit cards, auto and consumer loans is currently set at 4%. It corresponds directly with the Federal Funds rate, set by the Federal Reserve, which sits at 1% currently. However, the market has currently priced in an 80% chance that the Federal Funds Rate will be cut by .75% during the next Fed Meeting on December 16^th. What overall effect this will have in the housing and lending market as a whole however is debatable, following a string of cuts this past year. Remember as well, that we have written many times before that Federal Reserve rate cuts do not necessarily mean lower interest rates and this will be something to keep in mind as we mull the latest moves from the Fed and the Treasury.

For more information on changes that may affect you as a homeowner, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

CHANGES COMING TO FHA LOAN LIMITS, DOWN PAYMENTS & MORE

FHA LOAN LIMIT CHANGES

Currently in Maricopa and Pinal Counties in Arizona, the FHA loan limit is $346,250. This number was revised in March of 2008 as part of the economic recovery act that also temporarily raised loan limits on conventional loans in high cost areas such as Southern California. Unfortunately, at the end of the year, this number will be reduced and now we know what the number will be. The new loan limit for Maricopa and Pinal Counties in Arizona will be $271,050. The only exception to the rule will be Coconino County, which will keep a loan limit of $333,500, due to higher median housing costs in the Flagstaff area. Meaning that if you are looking for a lower down payment loan or need an FHA refinance and are looking for a slightly higher loan balance, the time to act is now, as loan limits will be decreased on January 1^st 2009.

What About Down Payments?

Starting January 1^st, 2009, FHA financing will increase the minimum down payment from 3% to 3.5% on all purchases. Meaning that there is very little time left to purchase a home with a 3% down payment. This change will not effect FHA refinances. However, this is still a 1% down financing program available for home purchases as well that is available to select lenders, please contact us for additional information.

VA Financing

VA loans will still not require down payment and no significant changes will be made for the 2009 year. VA financing still presents one of the most attractive loan products in the market, as it does not require any down payments, does not have any set loan limits and there is no monthly mortgage insurance.

Rural Housing Changes

The USDA Rural Housing will be undergoing some changes, though the final date of these changes, may not be known until after the new year. The Rural Housing program provides 100% financing for home purchases in designated areas, including Queen Creek, Maricopa, Buckeye, Waddell, Goodyear, Arizona City and Anthem. However, certain areas, such as Anthem are expected to be excluded from being able to utilize the program some time in 2009. If you are looking to purchase a home in one of these area and do not have the down payment for FHA financing or have VA eligibility. Then now is the time to act on this program, before additional changes are announced.

$7,500 First Time Home Buyer Tax Credit

Don't forget about the $7,500 home buyer tax credit for first time buyers. This program will run through June 30, 2009 and qualifies all first time home buyers (designated as not having owned a home in the past three years) to up to a $7,500 tax credit when filing their 2008 taxes (even if the home is purchased in 2009). This is an incentive that we are probably not to see soon again and a reason to purchase a home sooner, rather than later in 2009.

Conventional Loans

As expected conventional loans, backed by Fannie Mae and Freddie Mac have kept their loan limits at $417,000 for Maricopa and Pinal counties. In addition, the mininimum down payment for the purchase of a home in Arizona will generally be 5% for an owner occupied home, with the number increasing to 10% and 20% respectively for second home and investment properties

For more information on changes that may affect you as a homeowner or potential homeowner, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

Changes To Hope For Homeowners Program:

Government Hopes New Plan Will Reach More

This past week the government announced that it was changing its underperforming Hope for Homeowners mortgage rescue plan in an effort to spark more lenders and homeowners to participate.

The plan took effect on October 1^st, after Congress mulled the plan over for months before passing legislation last summer. Then finally implementing the plan through the Department of Housing and Urban Development, as the Hope for Homeowners mortgage rescue plan.

The program aimed to help hundreds of thousands of homeowners by putting up government insurance behind cheaper, refinanced mortgages, for people at risk of foreclosure.

However, since then, few troubled mortgage loans have been modified under the plan. Now, in an effort to kick start it, HUD is trying to open up the program to more homeowners.

"Clearly, meaningful changes were needed," said HUD Secretary Steve Preston. "These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD's Federal Housing Administration."

96.5% Replaces 90% Writedown

In the biggest change, lenders that participate in Hope for Homeowners won't have to write down loans as much as they did under the original rules for the program. The new guidelines allow them to reduce mortgage principal to 96.5% of a home's current market value - instead of 90%.

The new ratio guideline only applies to those whose new loan payments would not exceed 31% of their gross incomes. The write-down will remain 90% for borrowers who are paying a larger percentage of their income toward their mortgage debts.

"This balances competing aims of encouraging more borrowers to enter the program while controlling for potential losses due to re-defaults," Tom Deutsch deputy executive director of the American Securitization Forum, a group that represents the interests of investors in mortgage backed securities.

The smaller write downs make it cheaper for lenders to participate in this strictly voluntary program.

Upfront Payments To Lien Holders

The second change involves second lien holders, such as home equity lenders, of homeowners seeking to refinance into HUD loans.

Under the changes announced Wednesday, HUD will make up-front payments to get second lien holders to relinquish their rights to future payments.

Second lien holders often slow the mortgage modification process because they have nothing to gain from agreeing to refinancing, known as workouts. The values of the collateral - the homes - are almost always less than the amounts borrowers owe to the primary lenders.

The amount of payments to second lien holders will be negotiated on a case-by-case basis, according Deutsch. The more a loan is underwater - meaning a borrower owes more than a home is worth - the lower the value of the second lien and the less HUD will likely pay for releases.

Deutsch said he expects the payments to range between 5% of second lien in cases of the most severely underwater loans to as much as 30% for mortgages that are not as far gone as that.

40-year mortgages?

Lenders will be able to extend the terms of loans to 40 from 30 years. Extending the number of months borrowers have to repay their mortgages reduces monthly obligations. Sometimes that can make the difference between affordable and unaffordable loans.

No Waiting Period

In addition, the original legislation mandated a three payment trial term, during which borrowers had to pay faithfully before the modification became permanent. The new guidelines eliminate that requirement.

For more information on how this legislation affects you and what loan modifications may be available to you as a homeowner, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com