How a Refinance Can Drive Down Your Monthly Expenses

While all real estate may be local, so too is it true that one homeowner, confronted with the opportunity to save $250 per month through refinancing, for example, may view that as a significant financial relief while another may feel it’s not even worth it to get off the couch to consider going through the hassle of the loan process. As we work into the second half of 2019, there is no mistake that the low rate environment we are enjoying again is providing opportunities for homeowners to refinance. Often in these cases, having an open mind about any level of savings can help us determine whether or not a refi is “worth it.”  Here in the San Francisco Bay Area, if we take an average loan size and make some assumptions on monthly savings through a refinance at today’s rates, we see that it’s not unreasonable to think that our clients can save between $150 and $350 per month. When you look at this in relation to the most significant household budget expenses; auto loans, student loans and credit car payments, it’s easy to see why a careful review is a great idea. Need more proof?

  • As of 2018, it is estimated that 44% of American adults have a car payment. On average these individuals owe over $30K on their auto loan and they pay over $500 per month on their payment. Interest rates vary but with an average FICO score of 695, you can bet your bottom dollar that some of these merry motorists are not enjoying 1% interest rates on their auto debt. It’s possible today’s refinance could cut your auto payment in half — or at least that’s the way it would feel until the car is paid off.
  • The average student graduates (or not…) college with about $25,000 in student loan debt. It’s estimated that the payment on this would hover around $280 per month. Owning a home is a big financial responsibility. Owning it alongside student loan debt can turn it into a financial burden that refinancing might ease.
  • Depending on what stats you review, it’s estimated that the average American carries between $4000 and $7000 per month in credit card balances that roll from month to month. And you can be sure that as this revolving debt ages, the interest rate on it does not suddenly get better. To break this cycle, a refinance can provide needed monthly budget space to slash the credit card balances and get off the minimum payment treadmill.

Bear in mind that in each case above, I am not advocating that our clients take on more debt! We are not suggesting that they do a cash-out refinance and pay off these other obligations. That may prove to be a good strategy and might warrant further examination. But even in cases where a borrower simply does a “rate and term” refinance and lowers the rate and payment on an existing mortgage, the savings that result can go a long way to comprehensively addressing the other components of any household budget.

We’re here to help when you’re ready to look under the hood, roll up your sleeves and do the work.

My uncle has a country place, 

 

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

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

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

Unlocking a HELOC Mystery

If you could create a client-facing “tip sheet” for your business, a simple punch list of things to do and not-to-do, what would be on that list? You know, the items that always seem to fly under the radar of public knowledge and wisdom, but the ones that frequently undermine the best-of-intentioned customers? I’m sure all of us have this wealth of “insider knowledge” that we’d love to share with the public and, as a result, save them from the misery and inconvenience of being counted among the unfortunate and unsuspecting.

High on my list would be an explanation of how home equity lines of credit (HELOCs) are treated when a borrower goes to refinance a home. Typically, a borrower would obtain a HELOC one of two ways:

  1. At the time of purchase (as with an 80-10-10 or “piggyback” loan).
  2. At a later date. The borrower would have a first mortgage in place an later add a line of credit in order to do home improvement, consolidate debt, etc.

There’s an important distinction between the two options because in the first case, the funds used from the HELOC are considered “purchase money.” In the second case, well simply, they are not.

For the homeowner who has both a first mortgage and a HELOC, refinancing involves some additional considerations. The borrower may either consolidate the balance on the HELOC with the remaining first mortgage amount, or he may subordinate the HELOC altogether. This second option implies that the HELOC will stay as is, but that the second mortgage lender will agree to a process that allows that lien to stay in second position on the title of the home.

Assuming that we have a borrower who is looking to consolidate a HELOC balance into a single, new mortgage, lenders will first look at the nature of the proposed loan. If it will be a conforming or FHA loan, then any balances that are NOT purchase money, once combined will create a “cash out” refinance — even if the borrower does not get a single red cent back at the time of closing. Again, simply consolidating any balances that were not exclusively used to buy the home (such as with an 80/10/10) mean the new loan will be classified as a cash-out refinance and be priced accordingly — typically with slightly higher rates and more restrictive loan-to-value (LTV) parameters.

If the new loan will be a jumbo mortgage then things get a little more interesting. If the new loan balance will fall above the FHA and conforming limits then many jumbo investors will look at the line of credit itself. Specifically, they will look to see if any draws were taken on the line over the last twelve months. If not, then they will often classify the refinance as “rate and term.” This can be a real benefit to the borrower in the way of lower rates and higher LTVs. Just to clarify, the HELOC in these cases did not need to be purchase money, it just needs to have been recently inactive with respect to its balance increasing. If that holds true, structuring the refinance as a jumbo as opposed to a conforming, if possible, may be a highly beneficial approach and we employ it all the time here in the high-cost environment of the San Francisco Bay Area. But caveat borrower. If you have 11 months of payback on the HELOC that is punctuated by a $1 draw on the line in month 12, you go back to square one or you are looking at a cash-out refinance.

And so this last point is the one I wish I could shout from the rooftops.  If you have a jumbo scenario, and if you have a home equity line of credit that you’re looking to consolidate, try to avoid draws for 12 months before you refinance.

Let me know if any questions any time. We’re here to help you with your jumbo or conforming refinance and we’re here to help unlock a common mystery of the HELOC.

LOC her up, 

 

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 Is an Impound or Escrow Account?

When renters desire to become home buyers, they quickly learn once in the mortgage process that their single rent payment will morph into “PITI” or “principal, interest, taxes and insurance,” or a “total monthly housing payment.” So, yes, there are additional monthly expenses to consider when you become an owner. Historically, ownership has bestowed tax benefit on the buyer and that’s been an offset to the higher cost of ownership and because of this, the “rent vs. own” calculation has been used to more fairly compare the cost of putting a roof over one’s head. Rent may be simpler, but ownership is more comprehensive, if more expensive.

Let’s assume that our buyer has done the comparison and decides to move forward with purchasing a place of his own. At some point, his or her mortgage lender will offer a choice (or maybe not…) about how they will pay their property taxes and homeowner’s insurance. There will be two options:

  1. Waive impounds. The owner foots the property tax bill and insurance premium when due.
  2. Impound or “escrow” taxes and insurance.  The lender creates an account through which the borrower pays 1/12th of the tax and insurance bills along with the principal and interest payment (P&I) each month. When the bills come due, the lender pays them instead of the borrower.

What does this mean, how does it work and which is better? Let’s look at all three in plain language.

What Is an Impound Account?

As outlined above, “escrows” or “impounds” are a financial account where your loan’s servicer can collect, hold and disburse your property tax and homeowner’s insurance payments. The servicer maintains this account and documents it on your monthly statement. Escrow accounts are required on government loans, such as FHA and VA, but are elective in many other cases. Here in California, escrow accounts are required on a loan-to-value (LTV) of 90% or greater. Interestingly, in most states across the country, escrow accounts are customary (if not required). But here in CA, it is more common not to have an escrow account. Go figure…

How Does an Impound Account Work?

Escrow (aka, “impound”) accounts are “pre-funded” at the time of purchase and thus can make your settlement more costly. Why is this? Let’s look at California’s property tax year. It runs from July 1 through June 30. Let’s say you close on your home purchase on June 30. You will live in the house from July 1, forward, but you won’t make your first payment on the mortgage until August 1 because unlike rent, mortgage is paid in arrears. Our first installment of taxes is due November 1 and for a six month installment (July through December of the fiscal year). But note that if your mortgage payments start on August 1 and you have to pay your first installment on November 1, you will have only made three payments by the time the tax bill is technically due for six. Unless the servicer “pre funds” at least three months at close, it cannot cover your installment. This is why you’ll see a number of months of taxes and insurance added to your closing when you have a loan with an impound account. It’s important to note that even though your ongoing mortgage payments continue to add a fraction of your total tax and insurance bills each month, your servicer does not pay the county or the insurer monthly. They pay when the bill is due, just like those borrowers who waive an impound account.

Which Is Better, Taking or Waiving Impounds?

As mentioned, some loan types require impounds. Where that happens, buyers must carefully consider and accept the payment requirement. If there is a choice, it comes down to personal preference and budgetary discipline. Those who waive an impound account do have a smaller monthly expense to cover because they are only paying the principal and interest portions of their total monthly housing expense. When their insurance and tax bills inevitably come due, they have to be prepared to pay them in full, and that requires budgetary discipline on their part throughout the year — just as if the loan servicer was requiring allocations for these expenses. So like with most things in the mortgage industry, there are pros and cons but there is no free lunch. No matter how you opt to pay it, your tax and insurance bills will be the same and must be paid in full at the end of the day.

If you have additional questions about escrow accounts for property taxes and homeowner’s insurance, get in touch any time. As you can see, there are instances where using or foregoing an escrow account comes down to a choice. If you’re wrestling with the best fit for your situation, it often helps to remove the myths and emotions from the decision making process. We can help you do that and get the facts and math straight, and from there, the choice to take or waive escrows often becomes so much more clear.

Paid in full, 

 

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

I Got Another Rate Quote. Can You Beat It?

Talk may be cheap, but money is not. And you can bet your bottom dollar that most consumers seeking to get a mortgage will shop for the best rate quotes through any number of ways; their local bank, the internet, etc. We will often get requests to match or beat rate quotes as a result. Instead of publishing rates and promising that we’re the cheapest and best source for all rate shoppers, which is something that is frowned upon by the regulators of our industry, I instead want to shed some light on some of the governing principles that guide rate quotes from any and all lending sources. Below are three constants that apply in each case and to all shoppers for all programs.

[Too lazy to read the rest? Watch the rockin’ video below for all the information covered in this blog!]

Follow the Regs

With the passage of the Dodd-Frank Wall Street Financial Reform Act, the mortgage industry became subjected to the ‘anti-steering provision’ which prevents a mortgage loan originator from earning any more or less in commission depending on the rate charged to the consumer. In short, whether we provide you with a 3%, a 4% or a 5% rate, our compensation is the same. We have no incentive to put you into a program with a higher rate. In fact, you could argue that we have an incentive not to do this. After all, lower rates give an edge in winning rate competition and they bestow more qualifying power on the borrower. But there is an ugly side to the anti-steering provision — the lender’s inability to leverage their compensation to be more competitive. For example, prior to Dodd-Frank, originators had flexibility with their commission. If they needed to cut it in order to win a deal, they could. But now, our regulators say that if we had the ability to charge less to Consumer A, who does a lot of homework and negotiates strongly, what would prevent us from raising our compensation on unsuspecting Consumer B? The ability for us to negotiate is largely a thing of the past. Sure, we can submit for price exceptions on occasion, but they are just that — the exception. And the rule severely limits a lender’s ability to match or beat.

Time Is of the Essence

In real estate, we write “time is of the essence” into our contracts and this philosophy holds true with rates too. Just like the stock and bond markets, rates fluctuate every day and sometimes even multiple times when the markets are especially volatile. So it is vitally important that consumers shop for rates on the same day. A common scenario we see will have a borrower apply for a home loan in, say, January. Maybe they will get all the way to the altar with a pre-approval but then not find a property. During that process, the lender likely quotes a specific rate. Now, fast forward a few months and the borrower is working with a different lender and gets a quote that is higher or lower. This does not necessarily mean that the second lender’s rates are organically any better or worse. It might simply mean that the market has changed during the interim. So, collect your rate quotes on the same day if you’re comparing multiple sources. It may be time-consuming but it’s the only way you can truly be accurate.

The WebMD Syndrome

Lastly, when pitting one source of rates against another, make sure they’re all on equal footing in terms of the depth of the quote. Look at it this way. If you wake up one morning with a rash, you can research your symptoms online and get an idea of your condition. Or you can actually visit your doctor who will do a physical exam, perhaps blood work and then give you a diagnosis. Now you have a choice, you can follow the instruction of the doctor or of the internet. You see where I’m going with this. So too in the field of rate quotes, if you have had a lender pull your credit, review your complete application and provide terms for your loan, placing this on equal footing with an online quote could be risky. Rate quotes for jumbo mortgages are most sensitive to the finer qualifying attributes of the applicant and for this reason, I highly advise those in the jumbo market to get a complete credit approval prior to comparing rates.

I have always believed that an educated and informed consumer is our best client. And this applies to rate shopping as well. I similarly feel we always have a very strong chance of earning business based on available rates so long as quotes are on a level playing field, and getting the shopping public up to speed on this is something I’m very happy to do. If we can help you with your next home mortgage, let me know!

No one wants to be defeated, 

 

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