If your mortgage is set to adjust this year, the smart move may be to let it. Today’s conforming mortgages are adjusting lower than ever before — as low as 3 percent. It may not be what you expected when you signed for your ARM several years ago.
The reason why ARMs are adjusting lower is because of how they’re made.
When conforming adjustable-rate mortgages adjust, they adjust according to a pre-determined formula. The formula is the sum of a constant and a variable. The constant is usually 2.25 percent and the variable is a daily-changing interest rate called LIBOR.
The formula looks like this:
New Mortgage Rate = LIBOR + 2.250 percent
LIBOR is an acronym for London Interbank Offered Rate. It’s an interest rate at which banks borrow money from each other. In Fall 2008, when Lehman Brothers fell and sparked a global banking fear, LIBOR spiked as the risk of inter-bank borrowing jumped.
Since then, however, LIBOR is down.
Normalcy is returning to banking and the timing couldn’t be better for homeowners with ARMs. 15 months ago, a homeowner’s ARM may have adjusted to 6 1/2 percent. Today, that same ARM falls to just above 3.
As a strategy play, it might make sense to let your ARM adjust. Or, because fixed rates are still near 5 percent, converting that ARM to a long-term fixed-rate product might make sense, too. The decision is a balance between how low do you want your payment, and how long might you live in your home.
The longer you stay, the more it might make sense to switch to fixed-rate, even though ARM rates are so low.
If you’ve got an adjusting ARM, talk to me about your choices. Once March ends and the Fed withdraws its mortgage market support, mortgage rates may rise and the fixed-rate option may be gone.
Beginning November 17, 2009, the FHA will make it harder to qualify for its popular Streamline Refinance program.
Available exclusively to homeowners with existing FHA home loans, the streamline program is meant to help homeowners reduce mortgage payments as simply as possible.
As such, the program carries minimum eligibility requirements.
In fact, the FHA Streamline Refinance is more notable for what it doesn’t require from applicants.
The two biggest qualifiers, really, are that the homeowner meets a minimum credit score and that the new loan doesn’t exceed the original balance of the old loan.
The new program guidelines, however, are much stricter.
Effective next month, among other requirements, applicants must show evidence of employment and income, plus proof of cash required at closing.
Furthermore, homeowners can’t finance closing costs into the mortgage without a complete home appraisal. In areas of declining value, this may render refinancing with the FHA impossible.
Therefore, if you’re a homeowner with an FHA mortgage, consider contacting me (240-223-1730 direct) before the November 17 deadline to explore your Streamline Refinance options. Mortgage rates are low and you never know for what you’ll qualify.
The worst thing you can do is to wait too long to find out. Once the deadline passes, the old guidelines will be history.
I received a call this morning from a borrower who had recently closed a loan with me, and was asking why First Heritage Mortgage was sending him solicitations for life insurance. He felt it was a breach of confidentiality as he assumed we had provided his loan information to an outside vendor.
I explained that we would never provide his personal information to any third party that was not directly involved with the original transaction, and that lenders are held to very high standards regarding privacy laws - which they take very seriously.
The reality is that after a borrower closes on a mortgage, that information becomes public record when the Deed of Trust is recorded at the courthouse. Thus, the basic information - name of borrower(s), property address, loan amount, originating lender, etc. is available to anyone who takes the time to look for it. More personal information such as social security numbers is not provided.
Unfortunately, many of these companies use very clever strategies to make it appear as though the letter is from your lender. If you look closely enough, there should even be a disclaimer stating the truth - that no lender has endorsed the solicitation, and that your information was derived from public sources.
Best to ignore those letters. If you’re really interested in obtaining life insurance for your mortgage, I recommend clients talk to their own insurance agents or financial advisers about such programs. Lenders sell money; we’re not in the insurance business.
First Heritage Mortgage, LLC
6550 Rock Spring Drive, Suite 260, Bethesda, Maryland 20817-1131
Direct: 240.223.1730 • Toll-free: 866.833.LOAN • Fax: 240.223.1703
