30 Year Mortgages | Direct Your Own Loan

When to Consider Refinancing For a Second Time

As mortgage rates for 30-year home loans slowly climb higher, now is a good time to stop and think and think about refinancing or re-refinancing that mortgage you’ve taken out.

Refinancing can not only save you money off your monthly payments, it may also shorten the duration of your home loan. In some cases, it may be possible to accomplish both of these goals at once.
Millions of people have already taken advantage of programs like (HARP) the Home Affordable Refinancing Program to save a lot of money off of their mortgage. Some may even be thinking about the refinancing a second time. It doesn’t always make financial sense to refinance a home loan two or even three times, but it can if you know what to look for.

The Best Time to Refinance Once More

To state the obvious, refinancing only makes sense if it’s going to save you money or put you in a better financial situation. You only save money through refinancing if the rate at which you’re refinancing too is lower than the rate you currently have. For example, refinancing from 6% to 4.5% is going to make a huge difference in how much you pay in the long term.

Of course, some refinancing options may shorten the duration of a home loan and make monthly payments larger. In this situation, however, the homeowner would still be saving money in the long run because they would be paying less money over time in interest.

So, even if you’ve refinancing only a year ago, it will most likely to make sense to refinance again and lock in a low rate if interest rates are falling. For the time being, that simply isn’t happening though. Interest rates are at best remaining stable or slowly going up. This means that most people who have refinanced in the last 2 years will likely have lower rates on their home loan than is currently being offered on the market.

When Refinancing May Not Make Sense

Refinancing isn’t free so being strategic about when to refinance is always important. There is a certain point at which it no longer makes sense to refinance because you will actually be spending more on closing costs and other fees than you will be saving.

The general rule of thumb is that refinancing only makes sense if you can drop the interest rate on your home loan by at least 1%. But there are sever other factors that you may want to consider. Among these factors is how long you plan on staying in the home that you’re refinancing for.

Here is one way for you to determine whether refinancing will make sense. First, find the difference between your old mortgage costs and what you’ll be paying after refinancing. If you pay $1000 now and will pay $900 after refinancing then this number will be $100. Second, divide the closing costs of your new loan by the monthly savings. This will give you an idea of how long it will take before you break even. If you only plan on being in a house for another 3 years, but it will take you 4 years to break even, then refinancing obviously wouldn’t make sense.

Housing Market Recovery Set to Continue But at a Slower Pace

A number of positive indicators have shown that housing recovery is moving along steadily, though the pace at which the recovery takes place is set to slow down.

Home sales were strong in the first half of 2013, but the second half of the year was much weaker than the first. Moreover, home prices only reflect where the state of the housing market has been and do not necessarily reflect where we’re headed. It takes around six months for new information on home sales to work its way into the official data.

This is why some economists have predicted that 2014 will mark a noteworthy slowdown in home value appreciation. With less buyers looking to get a home, there will be less demand for new houses. And with shrinking demand, a slowdown in home value appreciation is what would necessarily follow.

Home Values In 2014

Another factor that will have a direct impact on home values is interest rates. The Fed has kept interest rates low for years through its bond buying program, but it has already begun to scale back its efforts on that front. If rates on 30-year mortgages do rise, that could significantly hamper the number of people willing to get a home or refinance. This is exactly what happened last summer when rates were on the rise and many Americans held of purchasing a home or refinancing an existing mortgage.

So, higher rates would likely lead to lower demand which would eventually mean lower home prices. This could be great news depending on what you’re trying to do. It’s not good news if you want to sell your house. Homes are often the biggest financial asset most Americans have and falling home prices are akin to becoming poorer. On the other hand, it may be good news if you’re an investor or a prospective homeowner looking for a good deal. The biggest winners in all of this would likely be all cash buyers who can get the low price they’re after without paying a dime in interest.

Housing Recovery Strength Depends on Location

Even as the housing market continues to recover, some locations are expected to bounce back faster than others over the next five years. According to a new study released by the Demand Institute, by 2018 median home prices will reach their same peeks that were seen in 2006. But the recovery is not expected to be dispersed evenly.

In the 50 largest metropolitan areas in the country, the top 5 locations will see home values appreciate by an average of 32%. This stands in contrast to the bottom 5 which will only see prices appreciate by 11%. But this is only half of the story.

What the data reveals is a striking wealth gap that’s being created in the housing market. For example, the top 10% of cities now control 52% of all of the housing wealth. Many of these cities are located on either the East Coast or the West Coast. Some cities, by contrast, still remain underwater nearly 5 years after the recession officially ended.

Which Mortgage Term is Right For Me?

On average, most mortgage lenders advertise interest rates with a 30 year mortgage term. This leads many homeowners to assume that the only option they have is a 30 year mortgage. In reality, there are multiple mortgage terms you can choose from. Your mortgage term directly impacts your monthly payment, how much interest you will pay over the life of the loan, and when your mortgage will be paid off. Before refinancing or buying a home consider which mortgage term is right for you.

30 Year Fixed Rate Mortgage

This is the standard option for many homeowners. A fixed rate mortgage offers the peace of mind that comes from knowing your mortgage payments, and interest rate, will never go up. As long as you keep the same loan it will be paid off at a set date, 30 years from now. This is an excellent option for people that love their home and neighborhood, and want to stay in it for a long time.

20 Year Fixed Rate Mortgage

A twenty year mortgage loan is an ideal way to pay off your home faster. The shorter your loan term, the higher your monthly payment. A twenty year mortgage loan is more in line with how a lot of families plan their future. 30 years is a long time to stay in the home, where 20 years is what it takes to get kids through school and into college. By the time they leave the nest; your mortgage could be paid off.

15 Year Fixed Rate Mortgage

A fifteen year mortgage loan will have a significantly higher monthly mortgage payment. For this reason, many people cannot afford them. If you have recently paid off other debt, like car loans, it could be a good time to refinance to a fifteen year loan and keep your monthly bills at the same level. By simply applying the money you were paying on a car or credit card, you can have your home paid off in half of the time. People that are getting close to retirement age should definitely consider a fifteen year loan. Social security and retirement benefits will go a lot farther without a mortgage to pay.

10 Year Fixed Rate Mortgage

This mortgage term is not for the faint of heart. A ten year mortgage requires large payments and dedicated effort to have your home paid off free and clear. This loan term is ideal for people that are at the top of their earnings’s potential and planning on retiring in the near future. Families that will have additional expenses, for example, having another child, during the ten year should stick with a more payment friendly option.

Adjustable Rate Mortgage (ARM)

ARM loans are typically amortized over 30 year mortgage terms. The interest rate is typically fixed for 3, 5, or 7 years then adjusts based on a margin over the index (could be the LIBOR). Your mortgage lender will set the margin and identify the Index they are using. ARM loans can keep your interest rate and payment lower on a monthly basis. If you are planning on being in a home short term, this could be a good option for you. Do not select an ARM for your dream home that you want to live in forever. Rather, use an ARM to buy a starter home.

Call your mortgage lender today to discuss loan options, interest rates, and to determine which mortgage term is best for you and your family. Your mortgage should be part of your overall financial plan so have a strategy and make sure it helps you reach your goals.

30 Year Mortgages Fall to the Lowest Level in Three Weeks – Lock Today

Interest rates have steadily increased throughout the year. This steady rise in interest rates have left many homeowners in a place of confusion, wondering whether or not to refinance. For the first time in three weeks interest rates have actually decreased. According to a spokesman from Fannie Mae the average rate for 30 year fixed rate mortgages dropped from 4.37 to 4.31 and 15 year mortgage rates dropped from 3.41 to 3.39. While these rate declines are not large, it is welcome news for homeowners. If you have been on the fence about refinancing, now is the time to call your mortgage lender. Economists predict that interest rates will continue to rise throughout the year. Locking in a low interest rate now can save you thousands over the life of your home loan.

Homeowners should be aware that over the past ten years the average interest rate on a 30 year mortgage has been 5.3%. An interest rate below that means you are saving money. If the rate on your home loan is higher than 5% you should contact a mortgage banker immediately to determine how much money refinancing can save you.

Mortgage professionals predict that interest rates on home loans will continue to slowly rise over the year. The challenge is not getting caught in a sudden rate spike. In June interest rates climbed by around 0.5%, the fastest climb in over twenty years. Homeowners can avoid this roller coaster ride by locking in their interest rate quickly. If you are buying a home, or refinancing, simply tell your mortgage banker that you would like to lock in your interest rate.

Low Mortgage Rate Tips

• Prepare Your Documents – Be prepared when you meet with your mortgage lender. Bring two recent pay stubs, 2 years W-2s, 2 yeasr tax returns, 2 months bank statements, and your insurance agent information. The lender may not need all of this but by having it available you can save time in underwriting.

• Streamline Refinance – Ask your mortgage banker if you qualify for a streamline refinance. They typically don’t require an appraisal and can close faster.

• Lock in Your Interest Rate – Tell your mortgage lender that you want to lock in your interest rate and ask them what the difference in rate is on a 30 and 45 day lock. If the rate is only slightly higher for a 45 day lock you may want to consider it. That gives more time for your loan to close without a concern about changing rates.

• Respond Quickly – When your mortgage lender requests a document or asks you to sign something, respond quickly. Delays can cause you to slow down the process and lose the lock on your interest rate.

If you have an interest rate higher than the ten year average of 5.3% call your mortgage banker immediately. Ask them to evaluate your home loan to determine how much money you can save by refinancing. Interest rates are rising so this is your chance to save money before it is too late.

Adjustable-Rate Mortgages Make a Comeback Amid Rising Rates

As potential home buyers accelerate their search to purchase a home before rates climb further, there has been a renewed interest in adjustable rate mortgages (ARMs).

During the height of the housing boom in 2006, ARMs accounted for 36% of all mortgages. In 2013, they only comprise 4.5% of all mortgages. But that could change if rising interest rates continue to push potential home buyers back to ARMs, which offer lower monthly payments and lower interest rates.

Adjustable Rate Mortgages vs Fixed Rate Mortgages

Fixed rate mortgages (FRMs) are a type of mortgage loan where the interest rate remains the same for the duration of the loan. An adjustable rate mortgage typically comes with a lower interest rate, but this rate can vary according to market conditions. Because the interest rate on ARMs can vary, they can leave some homeowners paying a much higher monthly payment than they initially anticipated. The riskier nature of ARMs helped cause them to fall out of favor when the economy crashed, especially as rates for FRMs began to fall.

Why ARMs Fell Out of Favor

Prior to the housing crash, rates steadily increased until near the end of 2007. ARMs were popular because they offered potential home buyers the possibility of getting into a home with a lower rate and smaller monthly payments than a FRM. When the financial market crashed in 2008, the Federal Reserve stepped in and instituted its bond buyback program to help push rates down.

Rates continued to fall near historic lows and thus erased much of the incentive that had previously been in place to get an ARM. The fixed rate mortgages on offer were safer and came with low rates that made owning a home much more affordable. However, market conditions have pushed rates back up. Interest rates for a 30 year fixed loan rose nearly a full percentage point since the end of May and now currently sit at 4.46%.

The Comeback of the ARM Loan

Potential home buyers are not just feeling pressure from rising interest rates, but from rising home prices as well. This was the case for Alicia and Ryan Diederichs who are now looking to make a home purchase. Alicia Diederichs says, “I feel like we might get priced out of the market in a few months, and just depending on the mortgage payment whether we could afford it if the interest rates go up more.” She continues, “Ideally we would do a 30 year fixed, but it’s all going to be dependent on the end mortgage payment, what we can afford, so we would have to look at an ARM potentially if rates continue to rise.”

It’s often been said that history repeats itself, and it feels appropriate to wonder whether the market may be returning to conditions which help fuel the housing crash in the first place. Prior to the housing crash, numerous homeowners were unable to keep up with their mortgage payments for their ARMs as their interest rates ballooned out of control. If interest rates are indeed scheduled to rise as many housing analysts expect, this should weigh heavily on the minds of those looking to take out an ARM.

Adjustable rate mortgages are higher risk by nature and should be approached with caution. It’s important to keep in mind that while they may be less expensive now, market conditions may likely push them up far past what the borrower may have expected. If you’re shopping for a home loan, it’s worth weighing the advantages of locking into a 30 year fixed rate while rates are still low.

The Benefits and Drawbacks of 20 Year and 30 Year Mortgages

Nothing will affect the total mortgage payment that you have to make each month more than the duration of time that the home loan is taken out for. Both 20 year and 30 year mortgages have their potential benefits and drawbacks .The decision to take out a 20 year or a 30 year mortgage will depend on a variety of factors and should be weighed carefully. Here are just some of the things to keep in mind when you decide to take out or refinance to a 20 year or 30 year mortgage.

1. Twenty-year mortgages help you build equity more quickly. Taking out a 20 year mortgage can mean building equity more quickly and receiving a better rate. But it also means that monthly mortgage will be marginally higher. A 20 year mortgage valued at 300,000 with a fixed interest rate at 3% will come with a total mortgage cost of $1,663.79. If this were a 30 year mortgage with a 3.5 interest rate the mortgage payment will be $1,347.13. Moreover, because equity is being built up more quickly, it may become easier for you to take out a second mortgage down the road.

2. Take into consideration the stability of your income. While it’s generally good to build up equity more quickly, there are still other factors to keep in mind. If you’re income fluctuates every month, then you may wish to think twice about taking out a 20 year loan. The lower payments of a 30 year mortgage can help you build up a cushion in the event that you lose your job or become under-employed.

Getting into debt is inevitable for most people. And debt is ok as long as it can be managed. Nonetheless, there is still wisdom in trying to become debt free as early as possible. Choosing between a 20 year and a 30 year mortgage requires choosing between having more money and flexibility in the present and having more money and flexibility in the future. Our consumer driven economy tends the value the former, but the later approach should not be overlooked for its merits.

3. Interest rates do not constitute the entire cost of the principal paid on the mortgage. Points make up part of the principal that you will have to pay for your mortgage. Points are fees that banks attach to the cost of the mortgage. They cover expenses such as inspection costs and preparation fees, and typically vary depending on the terms expressed in the mortgage. One of the benefits of 20 year mortgages is that they vary often come with lower points. The mortgage rates for Bank of America’s 30 year fixed home loan came with 1.125% in fees for points. By contrast, that rate was only 0.75% for mortgages that were shorter in duration.

Of course, the main difference between 30 year and 20 year mortgages is the amount of principal that ends up being paid for the loan. The longer the duration of any loan the more you will end up paying in interest. If you want to retire someday with a lot more money, then I would strongly suggest considering paying off your mortgage more quickly with a shorter loan.

How to Pay Off Your Home Loan Faster

Your home is more than an address. It is the place where you relax, raise your family, cook dinner, entertain friends, and where most of life happens. Paying off your home loan gives your family added security in the future. Once your home is paid off it frees up capital for family vacations, college, and retirement. The challenge for many people is finding a way to pay off their home loan faster. Fortunately an experienced loan officer can help.

Pay Off Your Home Loan Without Using Your Entire Budget

• Refinance your existing home loan to a shorter term. Instead of having a 30 year mortgage, refinance to a 20 or 15 year mortgage. Interest rates are extremely low so now is the best time to refinance. By reducing your interest rate and loan term at the same time you will see only a minor adjustment in your monthly mortgage payment.

• Apply your tax refund to your principal balance. By making one, larger principal payment every year you will significantly reduce the amount of time it takes to pay off your home loan. Since this money is not needed to pay your monthly bills, directing it toward your mortgage will not negatively impact your family’s disposable income.

• Pay an extra $100 toward principal every month. This slight increase in your monthly payment is the same as one tank of gas or taking the family to dinner. While it may seem small it makes a big difference. On a $250,000 mortgage loan at 5% interest rate over 30 years, applying an extra $100 per month takes the pay off date from April 2043 to January 2039. This small extra principal payment allows you to pay off your home four years faster.

• Consolidate your first and second mortgage into one refinanced, low interest rate, home loan. By consolidating the two loans you will reduce your monthly mortgage payment. Apply the savings directly to the principal of your home loan and pay off your home faster.

• Refinance and lower your interest rate. Today’s rates are so low that most people can refinance and significantly reduce their monthly payment. Apply the entire savings directly to the principal of your home loan on a monthly basis.

An experienced mortgage banker can work with you to create a plan for paying off your home loan faster. By understanding your long term financial goals a lender can help you achieve them. Paying off your home loan faster is easier than you think and simply takes being diligent. Many home owners find it easier to set up automatic principal payments to come out of their bank account every month. By setting up your loan for auto pay you can take out the guess work and use an amortization schedule to tell exactly when your home loan will be paid off and you will own your home free and clear. Diligence now will set up your family for long term financial stability.

Cash Out Refinance: Consolidate Your Debt and Save

Mortgage interest rates are at historic lows. With fixed interest rates around 3% now is a fantastic time to use the equity in your home to consolidate debt and save money on a monthly basis. Home owners with auto loans, personal loans, and credit card debt can save a considerable amount of money by rolling their debts into a home refinance.

If you own a home that is valued at $400,000 and owe $220,000 you have $180,000 in equity. That equity can be used to help consolidate debts.

How Much You Could Save

Mortgage Loan: $220,000 with a monthly payment of $1,798
Visa Card: $ 13,000 with a monthly payment of $398
Master Card: $ 9,700 with a monthly payment of $307
Auto Loan: $18,000 with a monthly payment of $405
Personal Loan: $16,000 with a monthly payment of $330
Total Debts: $276,700
Total Payments: $3,238

If you took all of those debts and refinanced into a 30 year fixed mortgage at 3.5% the monthly payment would only be $1,242. A $2,000 savings is monumental. Part of the savings is due to lowering the overall interest rate and elongating the repayment term of your credit card and auto loan debt. For example a car loan is typically for seven years or less. When you combine that balance with other debts into a thirty year mortgage you are prolonging the amount of years you have to pay that debt back.

Consolidating debts through a cash out refinance is another way to give you control over your monthly budget and free up cash flow for additional expenses. For people that have a decline in income, unexpected medical bills, or simply want to have more play money this is an ideal solution.

Refinancing and consolidating your debts can also help you to pay off your home loan sooner. If the above borrower could continue paying $3,238 towards debts on a monthly basis they would be putting the additional $2,000 directly toward the principal balance of the loan every month. At this rate the loan could be paid off in full in slightly over 8 years! This is amazing for people that want to be debt free. It is not as hard as it sounds. You can easily be debt free with this plan if you stick to a monthly schedule of taking the entire savings and applying it toward principal. This still leaves borrowers with flexibility because if an unexpected bill comes up you can keep the savings that month. The refinance puts you in the drivers seat. Not consolidating your debt keeps you tied to payment plans and schedules set by creditors.

Refinance interest rates are low so contact a mortgage banker today to discuss your loan options. There are various refinance programs available to save you money. Whether it is consolidating debt or simply reducing your interest rate, the savings can free up cash flow on a monthly basis and give you the opportunity to pay off your home loan sooner.