Should I Refinance into a 15-Year Fixed Rate Mortgage?

With the Federal Reserve tongue-tied and twisted and an easy trade war time-tripping into the future, we find ourselves the beneficiaries of another very appealing low interest rate environment here in the second half of 2019. This stands to benefit many who have mortgages at higher rates and even some who may not fit that exact bill, but who are focused primarily on reducing the term of their loan and perhaps paying their entire balance off at a faster rate. We are seeing a number of homeowners who are seeking to determine if they should abandon their 30-year amortized loans and refinance into a 15-year fixed. What are the key concepts these individuals need to know before they make this leap?

  1. For the vast majority, the mortgage payment will go up.  A while back I did the research on this and came up with my “10 and 2” rule. Namely, if you are in a 30-year loan now and have been paying it down for 10 years, then you refinance into a 15-year fixed rate loan with at least a 2% rate reduction over your present loan, only then would you have a new payment that is the same or lower than your current payment. And that’s a reach. So for most, refinancing into a 15-year fixed means a higher monthly payment, safe in the knowledge that the additional amount is going to reduce your principal balance and not to additional interest.
  2. You save big long-term. The total finance charge (aka, interest) on a 15-year loan versus a 30-year loan is dramatic. For example, on a $400K loan at 4%, you will pay a total of $287,478 in interest over 30 years. On a 15-year fixed at 4%, you will pay $132,575. But there’s a silver lining for the 15. Often the rate on a 15-year fixed will be lower than for a 30, so not only do you save on interest because of the term, but you save on interest additionally because of the lower rate. The rich get richer.
  3. Be mindful of your credit capacity. If you refinance into a 15, you’ll have a higher payment reporting on your credit report. Other creditors who may examine your debt-to-income (DTI) as a function of your creditworthiness could limit your access to credit due to the higher payment. This may or may not be a factor for your financial future, but do take it into consideration before you take the 15-year plunge.
  4. It’s possible to be debt free but wealth poor. I realize this sounds funny, and paying off a home is a commendable financial goal, but realize that while you are doing it, most of us also need to meet concurrent objectives when it comes to our money. Having a “rainy day” fund, paying off any tax-disadvantaged higher-rate consumer debt, saving for college and retirement and investing outside of real estate are important and worthy objectives and if all of your discretionary income goes into a higher mortgage payment, you could find yourself debt-free but savings poor down the road. That would almost certainly force you to look into refinancing the home again and accessing the equity, likely with a 30-year loan or a HELOC. Don’t laugh, we’ve seen this movie before…

With rates lower, it might indeed be worth looking into a 15-year fixed rate mortgage. But keep the above points in mind as you do. Like in physics, all actions have opposite reactions and finance is no different. Getting a lower rate, paying less interest over term and paying off your home quicker are all enticing objectives. There is a price to entry, however, and any true loan professional can help you assess that cost. Let me know if you need my help at any point in your journey.

Free and clear, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Closing Costs on a Mortgage

When a homebuyer, or homeowner looking to refinance, obtains a mortgage, there are always associated costs. Even in the so-called “no cost” loan structures, trust me, you’re paying something. When a consumer does the research on what it will cost to get a loan, there are a few ways to categorize and better understand what’s being charged. Specific numbers will vary wildly depending on the nature of the transaction, the amount and where the settlement takes place. A key takeaway of this article will be to differentiate between a “cost” and a “settlement charge.” They are not the same, and how they interact plays a large part in the total amount of cash a borrower ends up bringing to the closing table. I have found that by using three broad categories, we can get a better sense of how things will play out, and as a result, feel less of a sense of shock about the total amount of any settlement. Let’s look at these “buckets” now:

Lender Costs and Fees

Most lenders will charge an “origination fee,” and that cost is usually intended to cover their overhead. What I see across the industry is that this fee will typically range from $500 to $1500, though it may be called something other than origination. Lenders might also charge separate fees for credit reports, appraisals, flood certs and tax service, for example. If you are paying any discount points to lower your rate, they will be listed in this section as well.

Title/Escrow/Closing Agent Fees

Two things you’ll likely need in your transaction will be a closing agent (this can be an escrow company, attorney or other, depending on the real estate practices in your area) and some form of title insurance. While your fees for the settlement services themselves and the title insurance policy(s) will be the largest costs in this category, you’ll also see smaller amounts such as document preparation, notary, recording and other costs associated with title and escrow.

Prepaid Items

If there’s a place where things get tricky and where a settlement can “blow up,” this is it. “Prepaids” are amounts of mortgage interest, property taxes, insurance (both homeowner’s and flood, if required) and other components of the total monthly housing payment that are collected in advance and that contribute to your settlement. Without going into the complex calculations, know that when you have an impound or escrow account and you close a purchase or refinance transaction, your lender will collect those amounts in multiples of months. If the timing of your close predicates that you must reserves six months of property taxes and your property taxes are $6000 per year ($500 per month) then at close the lender will collect $3000 in tax impound reserves. It should be noted that this is not a “cost” of getting the loan. Your property taxes are due once you are an owner, but how you pay them drives this calculation and adds to your settlement.

While in this category, let’s do a little refresher on how mortgage payments are made. You pay mortgage interest ‘in arrears,’ which means that you live in the house for one month and then you pay your mortgage payment on the first date of the next month. If you close a home transaction on July 15, for example, your first payment on your mortgage will be due on September 1, not August 1. But why? Because mortgage interest is paid in arrears. At this closing, you would pay prepaid interest from July 15 through the end of July. You would have no August 1 regular payment (sometimes called “skipping a payment”). Then, because you’d live in the home all of August, you would get a ‘regular’ mortgage statement on September 1 for that time. It is by this logic that we discourage our clients from financing the prepaid interest, which can amount to several thousand dollars. If your settlement statement shows this amount of closing costs, it may be financially wise to bite the bullet and pay it, as you will not have your regular mortgage payment coming right on the heels of the closing.

Understanding how closing costs work goes a long way to understanding the actual amount you’ll see on your settlement statement. In any transaction there will be a total settlement amount, of which only a part will be actual costs to get the loan. Still, there is always a bottom line and understanding that at the start can help avoid confusion and unwanted surprises with cash to close.  If you have questions or need my help, get in touch any time.

Coffee is for closers, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

What’s the Point of Points?

Let’s get right to the point. What point? Points. I don’t get it. What’s your point? The point is points — what are they, how do they work and should I pay them when I get a mortgage? There’s a lot of confusion about points and when a borrower researches his or her best mortgage options, inevitably there will be an element of points in the debate. So in order to help ourselves find the best terms on any home loan, we need to get this point thing under our belt.

Point One (One Point)

Simply, one point equals 1 percent of the loan amount. If you have a $500,000 mortgage, 1% of it is $5000. Similarly, fractions of a point work the same. In our example, 1/2 point on $500K is $2500. If a lender says you can get any certain rate by paying 3/4 of a point, simply take your loan amount and multiply it by .75%. This rule never changes, despite loan size, type, borrower profile, etc. One point is one percent of the loan amount.

Point Two

Let’s put a finer point on points. We’re going to focus on “discount points” and not “origination points.” Discount points are meant to have a direct impact on the rate that the borrower obtains. “Origination points” are a cost to get the loan itself — independent of the rate provided. An important concept to know here is that on any given day, a mortgage lender can offer the public a range of rates. Let’s say a borrower qualifies for a 4.000% rate with “zero points.” This means that without paying any discount cost, the borrower’s rate would be 4.000%. Easy, right? OK. So what happens if the borrower wants a rate of 3.75%? Is that possible? Yes. But in order to get the lower rate, the borrower will need to “pay” the lender what it would cost to bring the 3.75% rate to “par,” meaning to level equal with the cost of the money at 4.000%. On the lender side, there is more cost associated with lower rates and an “inverse cost” (aka, lender credit) associated with higher rates. So on the scale of, say, 3.500% to 4.500%, the lowest rate would have the highest cost to obtain and the highest rate would have the highest “rebate” or lender credit. Due to regulation, lenders cannot profit any more or less depending on the rate chosen, so the cost or credit to obtain any rate must come from, or go to, the consumer.

Point Three

Does it make sense to pay points when you get a mortgage? Now I must tell you that as a veteran loan originator, many borrowers pay points to get a “sexy” rate. Let’s say a 4.000% rate is available with zero points, but that a 3.875% rate can be bought for a half point. Some will make that investment just to have the ‘3’ handle on their “water cooler rate.” OK, fine. It happens. But the decision to pay points should always include a math calculation and fortunately, it is a simple one. Let’s use our example again and say that 4.000% is available on a $400K loan at 0 points, or “par.” The payment on this loan would be $1910. Now let’s say this borrower hopes to get a rate of 3.750%. The lender comes back and says that 3.750% will cost .75% (3/4 of a point) to obtain. So, we have an investment of $3000 that will be paid at close as discount points, but in return, this borrower will get a 3.750% rate instead of 4.000% for the life of the loan. The payment savings per month in this case would be $58. Remember that the borrower is “investing” $3000 at close to get the $58/M savings, so we divide the cost by the savings to determine the number of months it will take to recover the investment. In this case, it will take 52 months, or a little over four years. If this borrower plans to be in the home and not replace the mortgage within the that time, the choice to pay points may indeed be a good one. However, if the borrower does sell or refinance in that initial window, the investment (or part of it) really will not return. Yes, the borrower got the better cash flow per month, but he/she never realized the true savings the lower rate would provide.

The decision to pay points is a personal one. This is not a “right or wrong” choice and is highly individualized to the scenario and the borrower’s financial plans and goals. Helping a buyer or someone looking to refinance understand how points work, and if paying them is worthwhile, is a conversation we are always happy to have. Call any time if I can be of service!

In the right direction, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

No-Cost Refinances. Too Good to Be True?

With all the talk of trade wars pushing mortgage rates to lows we haven’t seen in a couple of years, perhaps you’ve been thinking of refinancing and maybe even done a bit of research on the topic. It’s likely you’ve come across the term “no cost refinance,“ and you may be saying to yourself, “How do some lenders offer a refinance without costs?” or, “Is this too good to be true?”

It’s important to recognize that all financial transactions involve some costs. In the case of a mortgage these could be lender fees, appraisal fees, charges paid to a title or escrow company and even days of interest on the loan itself. It would not be fair to say that a refinance has “no costs,” but perhaps more accurate to realize there are different ways these costs can be paid. Let’s look at the three most common ways a borrower will cover the expenses of a refinance:

  1. Increased loan amount: Let’s say our borrower has an existing loan balance of $400,000 and closing costs that total $3000. This applicant would aim to finance $403,000 with the new loan. So long as the appraised value of the home will permit and so long as the new rate and payment allow, this would be the most common way we’d see a borrower refinance his or her home loan.
  2. Out of pocket: In our example above, this homeowner would not increase the loan amount, but instead leave it at $400,000 and would write a check, at closing, for the $3000 in total settlement charges. The largest benefit here is that the loan amount does not increase. This is the least common approach we see.
  3. “No Cost” structure: In a no cost refinance, the borrower actually opts to take a slightly higher rate than he could otherwise attain. With the higher rate, the lender will usually be able to offer a higher “rebate” or lender credit, and these funds are then used to pay the settlement charges. The borrower does not increase the loan amount, but foregoes a rate that might otherwise have been slightly lower.

So you may be asking, “Why would anyone deliberately take a higher rate?” The answer comes down to math and a slight shift in philosophy. In the case of the math, a lower rate and payment, no increase in loan balance, and costs that do not need to be paid out of pocket are all desirable and very likely have financial benefit in both near- and long-term. And in a philosophical light, the borrower is accepting that it is better to get most of the benefit at none of the cost than all of the benefit at some of the cost.

What’s the best way to refinance? The answer depends entirely on your own situation. If your subject property is in California, get in touch today and we’ll help you make that determination.

Freedom’s just another word for nothin’ left to lose,

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

When Is a Good Time to Refinance?

There’s that great, old maxim that goes, “There are two kinds of jobs in the world; the kind you shower before and the kind you shower after.” And in that spirit, I would offer that there are two kinds of refinances in the world — the kind you transact because you want to and the kind you pursue because you must. We’ll cover both here and we’ll talk about when it may be a good time to consider refinancing your home. But first, some basics.

Refinancing your mortgage(s) allows you to change the terms of your current loan or loans, by replacing them with a new one. Yes, you will go through the loan process again and there will be associated costs. Analyzing the recovery period on the costs involved will be a component we’ll address below, but even in the case of a “no cost” refinance, just accept that there are always some expenses. Next, because your title does not transfer in a refinance, it is very unlikely your property tax basis will change via refinancing. Many homeowners express that concern, but it is a concern that is generally unfounded. You can most often refinance without fear of triggering a reassessment and seeing your property taxes go up. Finally, there are two, broad categories of refinances; rate and term, and cash out. A rate/term refinance will cover just the payoff of your existing loan balance and perhaps your closing costs. A cash out refinance will pay off the existing loan or loans, your closing costs and will allow you to “cash out” some of the equity in your home. In other words, you walk away from escrow with a check. And no, you do not pay income taxes on those proceeds, as they are not income, but equity instead.

Refinances of Choice

By far, most refi activity is driven by rate. If you hold a mortgage at 5.000%, for example, and rates drop to 4.250%, and a refinance at the lower rate can save you $250 per month, you can consider making the switch. Now if it costs $3000 to refinance the loan, you will “recover” your closing costs in the first year you hold the new loan, but thereafter, you are saving $250. Some might argue that part of your savings stem from resetting the loan term back to 30 years — and they would be right. But nothing prevents this borrower from refinancing then continuing to make the original payment they had with the old loan, right? By doing so, they might even get ahead of total interest payments. So a refinance by choice provides options for saving in the near-term or long-term, depending on the borrower’s objectives. And we help them analyze and figure this out.

We’ll occasionally help a borrower convert a 30-year fixed into a 15-year fixed loan to hasten pay down of the loan. Sure, the payment almost always goes up in these cases — so this would definitely fall into the “choice” category — but if the owners can afford it, the reduction in term interest can offer a real financial benefit.

Next, we have the “cash out” refinance where the borrowers will use the proceeds to finance home improvement, a large purchase, college tuition, etc. I’ll even go so far as to say a debt consolidation refinance can fall into the “choice” category because there are occasions where a borrower’s debt may still be manageable but a careful review suggests that by consolidating it with the mortgage, the overall financial result is positive. And then there are other occasions where debt gets out of control and a refinance is really the only way to bring it back to a manageable state. That brings us to our next category…

Refinances of Necessity

Debt consolidation refinances where a borrower can significantly reduce payments are NOT, I repeat, not a free lunch. If you build student loan, credit card and other consumer debt into your mortgage, you might effectively be financing short-term debt at higher rates over a much longer term at lower rates. Still, interest is accruing in both cases.  Further, it’s incumbent upon the borrower to avoid racking up new debt once the old ones are consolidated. That kind of fiscal discipline must go hand in hand with a debt consolidation refi if it truly to move the homeowner forward financially. Other refinances of necessity happen when a loan has a balloon feature. In these cases, the loan holder must change the terms of the note before the balloon payment is due. Even though not as dire, we’ll often see a refinance used to get a borrower out of an ARM loan that will begin adjusting in the future and into a fixed rate loan. I’ll also group refinances to drop PMI (or FHA MIP) in the ‘necessity’ category. Sure, paying the insurance premiums perhaps isn’t life or death, but most borrowers do feel that if they can drop PMI and save right now, that’s something worth acting upon instead of waiting.

Individual financial situations are as unique as houses themselves. Refinancing is a tool that can help accomplish a wide array of financial goals, but regardless of the intended outcome, it’s vitally important that the math and the costs are understood. In each case, we help our refinance clients develop a better understanding of what’s at stake today, during the process and into the future. If you feel we can help you with your refinance decision, get in touch any time.

Back Jack, do it again, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

ARM vs. Fixed

If Stairway to Heaven is the most overplayed song, then the 30-year fixed mortgage has got to be the most overplayed loan option. And like the iconic tune, the 30-year fixed is really great. I mean for most borrowers, it’s the clear way to go. No rate changes, 360 equal payments and if you don’t refinance, sell the house or kick the bucket first, the loan is fully paid off 30 years down the road. But even if the 30-year fixed is a great and popular option, is it the best option for everyone? We’re seeing that more and more homeowners are opting for ARM loans these days but with that choice comes additional complexity and terminology to understand, so let’s roll up our sleeves, bear our guns and get our arms around ARMs.

Slingin’ ARM Lingo

When one starts examining an adjustable rate mortgage, things can get interesting, fast. Why? Because unlike the straightforward concept of a fixed rate loan, ARMs have several features that govern how they will work over the course of their term. We’re going to cover each below. But first…

The programs we’re going to cover on the ARM side are technically “hybrid” loans, and that’s all we really tend to see here in 2019. True, adjustable rate mortgage that do not have an initial fixed rate period are rarities in the residential home loan environment. So even though we call any loan that has adjusting features an “ARM” most of the mortgages you’ll encounter will have at least three years fixed at the start. And it is by this very start rate that an ARM loan will get its name; 3/1, 5/1, 7/1 or 10/1, that first digit designates the amount of fixed years at the beginning of the term. True, most of these loans will have a total 30-year term, but once beyond the fixed rate period, the loan begins adjusting and remains that way for the remainder of (what is usually, but not always) the 30-year total term.

Index and Margin

So what happens once a hybrid ARM converts to adjustable? You’ll recall that in our examples above (3/1, 5/1, etc.), we learned that the first number defines the fixed years at the start, but what about the “1”? What does that mean? It means that once the loan begins adjusting, it will do so once per year. Years ago, you’d even see a 5/6 ARM, for example. In that case, 5 years fixed to start and then adjustments every six months. But back to our fixed-to-ARM conversion. Let’s say we have a 7/1 ARM. We’ve held the loan for all seven years to start and now we are beginning the adjustable rate period. The loan servicer will take a margin, which is fixed and dictated by the loan’s Note, and add it to an index, which is adjustable and named at the start. A common margin might be 2.5% and a common index might be the 1-year LIBOR. So again, seven years in the future, the servicer will combine 2.5% with whatever the 1-year LIBOR is at that time and that will provide the fully-indexed rate (FIR). Were it not for ARM caps, this would be the borrower’s rate for the next year. But, not so fast, ARM loans are governed by limits on how much they can adjust and that’s our segue way to caps.

Caps

Hybrid ARM loans will usually have three caps; a first adjustment cap, a periodic cap and a lifetime cap. The caps are relative to the start rate. Caps will read something like this: 5/2/5. This would mean the loan has an initial 5% cap above the start rate, a 2% cap from year to year once adjusting and a lifetime cap of 5% over the start rate. A “floor” rate may also be designated and this would be the lowest the rate could go at any time during the term, despite what the index might otherwise dictate. Let’s jump into some examples:

Case 1: 7/1 ARM, 5/2/5, Margin of 2.5%, Index is 1-Year LIBOR, Floor is margin, start rate is 3.500%

This loan will have a 3.5% interest rate for 84 payments. After that time, let’s say the index is 6%. The servicer goes to adjust the loan and the FIR is now 8.5% (index of 6% + margin of 2.5%). The first adjustment cap of 5% over start rate has not been exceed and the borrower’s rate can jump to 8.5%.

Case 2: 7/1 ARM, 5/2/5, Margin of 2.5%, Index is 1-Year LIBOR, Floor is margin, start rate is 3.500%

Our borrower continues to hold the loan in Case 1. At the beginning of year nine, the index is now down to 2.5%. The FIR is now 5%, however the 2% periodic cap would limit the rate reduction to 6.5%. If the index remains the same, the borrower’s rate could then drop to 5% in year 10.

Case 3: 10/1 ARM, 2/2/6, Margin of 2.5%, Index is 1-Year LIBOR, Floor is margin, start rate is 4.000%

The borrower has 120 payments at 4.000%. During this time, the 1-Year LIBOR goes to 18% and stays there for 20 years. In year 11, the first adjustment cap would limit the borrower’s rate increase to 6% and it would stay there for a year. In year 12, the periodic cap would limit the next change also to 2%, so the borrower would pay 8% that year. Finally, in year 13, the life cap would limit the FIR to 10% and keep it no higher than that for the remainder of the loan’s full, 30-year term.

ARM vs. Fixed

So which is best? As you might suspect, this is a highly individual choice that involves the universal risk/reward concept. If you plan to stay in the home for less than 10 years, for example, and if you can tolerate the possibility that your rate and payment could increase if you overstay your expectations, a 10/1 ARM could be a great fit for your needs. Every month you pay at the rate that is less than what you would have obtained by taking a 30-year fixed, you save. This is how most borrowers will assess the choice. But there is another camp too, and I have visited it many times over the course of my career in advising those looking to buy or refi. There are simply some who will not sleep well at night thinking that their mortgage payment might ever go up. For this group, it’s best the math gets set aside and a fixed rate option moves to the front. Like other financial risks in life, one can pay for insurance, and a fixed rate loan provides that in the mortgage lending world.

If it ain’t broken, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Using a Jumbo Mortgage to Buy a Second Home in Hawaii

Who, stateside, doesn’t at least want to entertain the idea of calling it a long work week, heading to the airport and then a few hours later touching down on one of the Hawaiian islands? What if you’re on the cusp of that reality and have decided to buy a second home in Hawaii and need a jumbo mortgage to help you achieve that goal? I am a licensed mortgage loan originator in Hawaii, can help and here’s what my clients need to know.

What Is a Second Home?

While any vacation residence may seem to fit the bill, true second homes have specific, defining characteristics in the eyes of a mortgage lender. For us, a second home must meet these three guidelines:

  1. Must be a reasonable distance from your primary residence. Since we’re going to assume you live in the contiguous 48 or Alaska, this is likely the easiest hurdle to clear.
  2. Must be suitable for your year-round occupancy. This goes hand-in-hand with the point to follow, but think of it this way. Your vacation home is yours. That means if you decide to show up for an impromptu weekend or an entire month of the winter, you don’t have to move anybody out. The home is always there for you when you want to occupy it for any amount of time.
  3. You must not enter into any rental agreements. Sure, AirBnB and VRBO have muddied the waters considerably but if you’re going to purchase a home, the true test is your intent. If you plan to make money off of the property, then you technically have an investment property and not a second home and your lender may approve or deny your loan application on that basis. And let’s be very serious. If you deceive your lender into approving a second home mortgage, presumably to take advantage of a lower rate and smaller down payment requirement, and then begin renting out the property, you could be in serious trouble on a Federal level. Just don’t do it.

We Can Handle the Big Surf Too

Namely, if you need a jumbo mortgage we can go up to a loan amount of $3,000,000 with as little as 20% down ($3,750,000 purchase price). But even if you simply desire a small, quiet place in your own corner of paradise, then conforming loans are a good choice and for those price points you can put as little as 10% down. Second home condominiums require an additional layer of care and I’m going to cover those in a separate blog post to follow.

Ohana On a Mission

As a 3-time Hawaii Ironman Triathlon finisher and Honolulu Marathon veteran, I have a deep respect for the culture of the islands. I made it a life goal of mine to test the boundaries of my physical capacity in that most beautiful of challenging environments. But you know what? Business is done differently in Hawaii and for some on the mainland, both the time change and the different pace of life can add stress in the process of obtaining a mortgage. Of course, there are many capable mortgage lenders on the islands, but if you choose to work with someone remotely, my team is ready to treat you like family and get the job done with professionalism and efficiency.

Thinking about buying a vacation home on Oahu, Maui, Kauai or the Big Island? Get in touch and let’s talk story.

Aloha Oe, 

 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Lock Watch for the Week of 3/11/2019

Volatility-O-Meter:

A lot of key reports this week and on the heels of the real dud of a jobs number Friday. Could this be an inflection point? We’ll see. Oh, and let’s not forget auctions too.

Economicalendar (all times are Pacific):

  • Mon, 3/11:   Retail Sales (5:30am), Business Inventories (7am), 3-Yr Note Auction (10am).
  • Tues, 3/12:   CPI (5:30am), 10-Yr Note Auction (10am).
  • Weds, 3/13:   Durable Goods and PPI (5:30am), Construction Spending (7am), 30-Yr Bond Auction (10am).
  • Thurs, 3/14:  Jobless Claims and Import/Export Prices (5:30am), New Home Sales (7am). Fed Balance Sheet (1:30pm).
  • Fri, 3/15:    Empire State Mfg Survey (5:30am), Industrial Production (6:15am), Consumer Sentiment and JOLTS (7am).

10-Year Treasury History

  • 2.64%   Market Open
  • 2.74%   One Week Ago
  • 2.63%   One Month Ago
  • 2.87%   One Year Ago

(Need a rate quote for your specific scenario? Click anywhere on this link.)

Marin Ultra Challenge 50K

The weather forecast called for 100% chance of rain. High of 52F, low of 39. A great day to tackle another ultramarathon and my second 50K (31 miles in name, closer to 29 by way of my Garmin), right? The Inside Trail Marin Ultra Challenge started at 6:30am at my favorite House of Horrors, Rodeo Beach. This time, the course would be different than last month’s Coastal Trails 50K, but employ many of the same trails, ascents and descents. Combined again with the muddy conditions, it was shaping up to be one of those days where you would be wise to live by the motto, “Don’t think, just do.”

So up we climbed out of the staging area. Oh, and lest I not be grateful, it was not pouring rain while we waited to get underway. The first miles of an ultra should always be uneventful and traversing Gerbode Valley, I kept my pace in check and focused on not repeating the epic fade that defined last month’s race. At the first aid station, some 5 miles in at Conzelman, I felt zero strain. I pressed on to the Tennessee Valley aid station at mile 10 using the same cautious, at times even absurdly slow, approach. The climb out of Tennessee and down to Pirate’s Cove was also very conservative and the trail here was treacherously slippery. Too early to make mistakes, fall or otherwise get discouraged. As the skies opened I was mostly thinking about my son’s Junior Warriors basketball that I would be missing, and that would be getting underway shortly.

Out of the Cove, we climbed up to the ridge above Muir Beach and then descended to the aid station there. At this point, none of us were protecting our feet any longer. There were too many puddles, too few firm patches of trail and one simply resigns to having their feet soaked. At Muir, we started an out/back on Dias Ridge and were greeted with the day’s worst weather; cold, dark, rainy, ridiculous.

Returning to the Muir Beach aid station, my mindset shifted to the two key climbs required to get me home. First, to ascend out of Muir valley, then once back in Tennessee, to go up and out of there, gain Hill 88 and downhill to the finish. It would work out to be almost another two hours of running and despite the mud at Green Gulch, there was some promise of sun, and it was a promise fulfilled upon gaining the top of the last ridge.

At about this point, I realized I might make a time goal that seemed improbable at the start but within the grasp of reality assuming a strong push and no mistakes. That was a mixed blessing because now I had to work hard and not let up. I would have much rather cruised home while taking in the sweeping coastal vista, but instead I downed another caffeinated energy gel and gave it a go.

I learned a lot last month about what not to do in a 50K. I can be pretty hard-headed, but since I don’t have time to train very much and because I’m playing with fire every time I suit up to run long distance these days, I figured it was a safe bet to apply those new skills and, for the most part, it worked. I felt pretty good upon finishing, got into dry clothes and hung around to cheer others in. Oh, and though still brisk at the beach, the sun smiled and capped a really solid day in the saddle. Next stop, twice the distance, but that’s a bit off and not something to think about right now.

It keeps you runnin’,

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Will My California Property Taxes Go Up if I Refinance?

I would be willing to bet that each year, good financial benefit gets left on the table by those who want to refinance their mortgages but are afraid that by doing so, they may see their California property taxes go up. Is this concern founded? Can that really happen?

In short, no.  California property taxes are not reassessed when a homeowner refinances his or her mortgage. And the simple reason for this is that there is no transfer of title that would trigger the tax basis to be reassessed by the County Assessor. When an owner of real estate refis the mortgage, the title vesting usually stays the same and the only thing that changes is the lender that encumbers the title with its mortgage.

So for the vast majority, if a refinance makes good financial sense, then there will likely be no ramifications to the amount of property taxes owed. Always ask and always check with your loan professional, and certainly keep these property tax facts in mind here in California:

Property Tax Bill Information and Due Dates

Secured property tax bills are mailed in October and payable in two installments:

  • First installment due date: November 1
  • Second installment due date: February 1

“Now hold on a minute!,” you say. “I was told I could pay in December and April!” Well, technically, you can.  The late dates for the installments are December 10 and April 10, respectively. And what I’ve noticed after a long career in home finance is that most county residents pay just before these late dates. In fact, if you really want to people watch at the post office and you can’t make it on any given April 15, your next best viewing opportunity is very likely December 10. Late penalties are 10% of the installment amount, so it’s not just a slap on the wrist. State law extends the deadlines above to the following Monday if December 10 or April 10 fall on a weekend, but postmark determines the payment date. If you’re late and don’t include the penalty, the county will send back your original payment.

“What If My Lender Pays My Taxes?”

If you have an escrow or impound account through which your mortgage lender pays your taxes, your property tax bill will state, “a copy of this bill was sent to a paying agent at their request.” If you are unsure of whether or not your lender has paid your tax installment, you should clarify this with your servicer. They are the folks who send you your monthly mortgage statement. I always advise my clients to let me know if they need help with this — I just feel it’s a service any good mortgage professional should provide, and we handle the “straightening out” of countless, anxiety-inducing property tax questions throughout the course of any year. Note that if you pay your mortgage in full or refinance during the course of any year, you may become responsible for your tax payments even if you’ve impounded all along. Again, call us if we can assist.

What About Supplemental Tax Bills?

Your County issues a supplemental assessment when a change in ownership occurs. This bill reflects the difference between the seller’s basis and your new and ongoing basis and you’ll only receive it in that first year of the purchase. Afterwards, the correct tax amount is entirely reflected on your regular bill. The Assessor’s office provides owners with new, previous and supplemental values and you can always call them for specifics.

Refinancing can make sense in any market and at any time of year. If you’ve harbored a concern that a change in your property taxes could make a refi costly or inefficient, think again and let us know if you have any questions at all.

Read my lips, 

 

Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283

Can You Get a Mortgage with an ITIN?

The fact is, despite a very hotly contested immigration debate today in our nation, there are likely several million people in the United States who do not have a Social Security number (SSN), but pay billions in taxes every year. These individuals might be non-resident foreign nationals who receive taxable income from a US business. Or they may be dependents or spouses of citizens or permanent residents (green card holders) or foreign nationals on work visas. But if they earn income here, how would they file a tax return without an SSN, you might ask? The answer is the Individual Taxpayer Identification Number or “ITIN.”

Now again, we’re not going to takes sides in the immigration issue here. We are not going to report ITIN borrowers to Immigration and Customs.  ITINs do not provide legal immigration status or work authorization — they are merely an IRS tool for permitting an individual to comply with tax laws and as a result when they do, some of them become eligible for a mortgage via specific programs that accommodate this type of identification. Many ITIN holders and real estate professionals are not aware of this and the aim of this post is to outline what is required to obtain a home loan with a combination of an ITIN, employment documentation, residency documentation, and, of course, a down payment. Let’s take a look at what’s possible.

On the purchase of a home, an ITIN buyer will typically need to put between 25% and 30% of the purchase price down, and these funds will need to be documented with bank statements and/or gift letters, just as for a US citizen. Money from abroad can be used, but must be sourceable. We’ll also look at income and employment with a combination of one year of tax returns and written and verbal verifications of employment. Our borrower must be working and able to repay the loan.

Since an ITIN borrower will not, by definition, have a Social Security number, our investor will pull a version of a credit report using the ITIN number. And herein lies an important caveat for the ITIN borrower. If his/her tax return contains a false SSN or otherwise invalid ITIN, the borrower would not be eligible. We are not interested in financing those who are working outside of the tax system and perhaps fraudulently using another’s ID forms. Our borrower must be legitimately filing with an ITIN for the last year. In order to calculate liabilities correctly a complete list of obligations will be used to determine debt-to-income (DTI). We will often reference the history on any credit cards, auto loans, etc., to verify satisfactory payment history.

We offer fixed rate loans to our ITIN customers and loan amounts can go from $100K all the way into jumbo territory. For details on programs, rates and terms, don’t hesitate to get in touch. But know that if you’ve been working in the US and paying into the system, yet don’t have a Social Security number, you are not, by definition out of luck.

Hey, teacher, leave those kids alone, 

 
Robert J. Spinosa
Vice President of Mortgage Lending
Guaranteed Rate
NMLS: 22343
Cell/Text: 415-367-5959
rob.spinosa@rate.com

Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960

Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283