Mortgage Loan Calculator

With the majority of economists now speculating that rates will either go up or perhaps stay the same for the foreseeable future, anyone who has been thinking about refinancing will probably want to look into it now. We're not expert economists here, but rates have increased a little bit every day since Bernanke lowered the discount rate last week. Below is a calculator to help you determine if a refinance is a good idea for you.

Also, for potential homebuyers, this will give you an idea of what you can afford. Be sure to use the "mortgage" function rather than "loan" function so you'll have the most accurate total payment including property taxes and homeowners' insurance.

Posted by All Pacific Mortgage at 12:22 PM 6 comments  

Your Home Equity Line Might Vanish

Last month we received a memo suggesting we inform our clients that many lenders were poised to freeze their HELOCS. So in our monthly newsletter we let everyone know that if they know they’ll need the money from their Home Equity Lines they might want to take it out now and put it into an interest-bearing account. But before we could even get the newsletters in the mail, I received a letter from my bank. My HELOC has not been frozen, but the maximum line has been decreased based on the bank’s belief that houses have decreased in value, generally speaking. So now I know firsthand – it’s happening. The bank told me I could pay for an appraisal to be done by THEIR appraiser if I wanted to dispute it, but I know that will likely prove to be wasted effort, time and money.

I’m not overly alarmed by it. According to Freddie Mac’s chief economist’s report the housing market probably won’t improve as a whole until 2010. In our favor, we are still experiencing job growth in Oregon at this point which offers hope in terms of recovery. But it’s a good time to create a short term budget if you were planning to leverage the equity in your home over the next few years. Here’s a very thorough and easy to navigate budget created by Dave Ramsey if you need help there.

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Could I Accidentally be Foreclosed on?

In a crisis situation there is no institution more aggravating to have to deal with to get it straightened out than a bank. On second thought, maybe the government would win that contest, but banks are definitely a close second.

I have a Home Equity Line of Credit through my bank. Having worked in the mortgage lending industry since I was just twenty-two, I'm a teensy bit of a fanatic about making sure I make my mortgage payments on time. So imagine my distress when I heard a message on my answering machine from my HELOC lender's foreclosure department. I called the number they left, but when they started asking for my personal information I panicked, wondering if it was some kind of an identity-theft operation (not that I'm paranoid or anything). The conversation went like this:

Me: I'm not giving you any personal information -- I don't even know who you are!

Unfortunate Customer Service Rep: Ma'am, you called ME. I can't help you without your personal information.

So instead I decided to call the general customer service number, so I could be sure I was actually calling my bank. And they said they didn't know why I was being called because my payment history is perfect.

I verified that it was actually the foreclosure department calling, so I called them back to give them my personal information and they said, "Sorry, we have no record of you here whatsoever."

How can that be when they're calling me every day saying I must call them back regarding a debt collection?

No one at the bank knows the answer to that question.

Now mostly this is just annoying, but I also have a wonderful lady who cares for my children three afternoons per week, and she's been hearing these calls. Not only does it embarrass me, but I'm afraid she's thinking, wow these people can't even make their house payment, I'd better look for another job -- and we REALLY don't want to lose her!

I need to call the bank again today, but I then I think I might as well just hit myself over the head with a shovel several times -- same result, less aggravating.

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Dave Ramsey's Mortgage Calculator

I've received several e-mails from people wondering why I don't recommend paying off (or paying down) mortgages. But actually I neither recommend that people do nor do I recommend they don't. I think this is a personal preference. Either investment strategy can work out well for people. For those who want to put themselves on a plan to pay their mortgages off early, Dave Ramsey has a great and easy calculator here.

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Big Returns on Home Improvement

A lot of people are having a hard time selling their homes these days – maybe you’ve heard? Because of that we’re doing many loans right now for people who’ve decided to just remodel, instead of move, until things look up out there for sellers.

(A quick warning – if you need a second mortgage to finance your remodel, in most cases you’ll have to wait for six months after your house is taken off the market.)

This can be a solid investment, if you do it right. Some projects increase your home’s value more than others. Remodeling the most-used rooms in your home is likely to pay off the most.

Kitchens, which are used for preparing family meals and are often the preferred gathering spot for socializing, suffer the most wear and tear. They also tend to follow style and color trends more than other rooms, so they can appear dated more quickly. Many homebuyers also want the most up-to-date appliances in their kitchen, so it can really pay to renovate this room. In fact, a kitchen renovation generally has a 95 - 125% return on your investment.

Adding a bathroom usually pays between an 89 - 96% return and adding a family room can pay back more than 84% of your investment, making these the next two smartest home improvements. The main thing to keep in mind when remodeling is whether the project will increase the functionality and beauty of your home.

You also want to remember to remain consistent with other homes in your neighborhood. You never want to remodel your home so much that it’s valued significantly higher than surrounding homes. Altering the size or style of your home too much can also make it harder to sell.

Home Equity Lines of Credit (HELOCS) are the most popular way to finance home improvements. The rates adjust with the Prime rate, but you can run it up as needed and pay it down as you can – as opposed to a closed second where you have to take a certain amount of money in one lump sum and pay a fixed payment for 15 years. In terms of interest and finance charges they operate similar to a credit card, in that your minimum payment each month is the interest accrued on the amount borrowed (not the amount available).

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Could the Writers For Money Magazine Catch a Clue?

Do they just let anyone write for Money Magazine? I have never seen more misinformation in one article than I saw in this one today. The gloom and doom days are over, it would be nice if the media would get with it. A few months ago, it was true that each day lenders were getting rid of programs and tightening their standards. But now, lenders are coming back with the same programs they've always had. There are a few changes, the most important (and one that I'm proud to say does not affect my company) is that lenders are making it more difficult for people to commit fraud.

Here's a short list of errors in this article:

1."What's happening: Several species of exotic mortgages are headed for extinction, including the 2/28, the 3/27 and those requiring no proof of income"

Wrong. There are still loans available (purchased by Fannie Mae and Freddie Mac) that do not require a borrower to even have income or verify where their down payment is coming from. The rate today is 7.125% and requires 20% down. Additionally, there are plenty of "Stated Income" loans still out there, but now they're mostly only available to self-employed people. Which is just as well, because there's no reason for a wage earner to be unable to prove their income unless they're lying or being paid under the table.

2."You'll find lenders stingier on appraisals, more persnickety on documentation and far less likely to finance 100 percent."

Wrong. There are still a lot of 100 percent loans available, and there are only added restrictions on appraisals for people in soft markets (which Oregon is not).

3."If it's [your adjustable rate] coming due and will end up above 7 percent, consider refinancing to a fixed rate. You'll need 10 percent equity and a credit score over 660."

On what planet? Because on Earth, you can do a conventional refinance with 5% equity. If you don't have a high credit score, you can do an FHA refinance with 3% equity.

4."Home-equity loans and lines of credit - What's happening: These are generally holding at about the prime rate, now 8.21 percent if your credit score is above 680 and you can prove income. But you can't tap 100 percent of equity anymore; you'll be lucky to get 80 percent."

Wrong. Actually, the rates on these keep going down. Today I can do a rate of Prime MINUS a half. Pretty good. Additionally, 100 percents are WIDELY available. It is true that you need really good credit for these.

Be careful when seeking information -- evidently even on CNN anyone can say anything on the internet.

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Mortgage Debt -- Good or Bad?

Do you borrow as much money against your home as possible or make the largest down payment you can? Do you pay over 30 years or condense into 15?

The answer to those questions depends largely on who you ask. Due, in large part, to the number of people who are in debt up to their eyeballs these days, there’s no shortage of financial gurus who encourage people to shun debt of any kind, including mortgage debt. This can be a fine option, but tying up all of your cash in your primary residence also limits your ability to make other investments.

People who have grown businesses from the ground up understand the principle of leveraging. No matter how much new business owners make, (if they’re smart) they’ll be stretching all of that money to acquire more money-making business assets. What that means if you’re the spouse of said business owner is that you’re doing very well financially, but this is not the year you’ll finally be seeing Europe. Sorry.

Then again, most start-up companies fail. And, understandably, most people think of their homes as a place to keep safe from financial risk as opposed to a tool for achieving financial goals. But home equity, while certainly not a bad thing to have, has a zero rate of return.

What becomes important in terms of accumulating wealth is what you do with the money you didn’t use for a down payment (or the money you withdrew from that equity line of credit). More often than not, that money can be invested with a return that is greater than the cost of the debt against your house. But if you’re spending it all at the mall, obviously you won't be better off in the long run.

Having no debt can be liberating and free up cash flow for other investments, but it doesn’t give you a better return on your investment. So really, if you’re taking a disciplined approach, either way can work out well for you in the end, but you can build wealth more quickly if you leverage the equity in your home.

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The Great Mortgage Lender vs Mortgage Broker Debate

With the current liquidity crisis going on (every couple of hours we receive notification that yet another investor will not accept new applications or, worse, will not close a loan we already have approved with them), I thought it might be a good time to talk about mortgage fraud and who tends to have the borrower's (and the lender's) best interest at heart.

I began my career at a wholesale lending company (Countrywide, if you must know), where I observed a whole spectrum of mortgage broker practices. Some were honest, many not so much. Additionally, over the years I've watched brokers come and go like the wind. When there's a refinance boom, everyone and their brother decides they ought to be selling mortgages, and when the party's over they go back to selling vacuum cleaners (not that there's anything wrong with that). Mortgage lenders generally figure out how to operate regardless of market changes, and the odds are better that you're dealing with someone for whom mortgage lending is a long-term career.

When I left Countrywide Wholesale, I went to work for a retail mortgage lender, which is an entirely different experience from dealing with mortgage brokers. For one thing, mortgage lenders don't want to get sued or lose their businesses, so they tend to educate their loan officers about pesky little details -- like the importance of obeying the law, for instance. The unscrupulous loan officer who works for a mortgage lender is not just committing fraud against his customer, he's also committing fraud against his employer.

Mortgage Brokers have no accountability really, and that's why so many people who are in for the quick buck are attracted to that arrangement. Once the loan is closed, the broker is never again involved. On the other hand, if I make a loan to a client and three months later said client fails to make their mortgage payment, my corporate office will call me and say, "You need to find out why Mr. and Mrs. So & So haven't made their payment." (I don't have to break their legs or anything -- I just have to give them a call to find out what's going on.)

Likewise if a closed loan gets rejected by an investor because I made an error, I'll be asked to correct it, pay for it or find another job -- depending on the severity of the circumstance. At the very least I'll have someone I work with every day give me the "you really screwed up for us" lecture, and no one likes to face that.

Now, for sure I've known some stand-up mortgage brokers, just as there are some bad lenders out there. But for the most part, in my experience it's best both to work with and for a lender as opposed to a broker.

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The Perils of Easy Credit

Over the weekend the New York Times highlighted one couple's struggle to manage their accumulated debt. They both work full time and live modestly by American standards, yet they're buried under mountains of bills, finance charges and late fees. And they're not alone -- many Americans are heavily indebted to credit card and finance companies. And if the credit card companies have their way, that won't be changing any time soon.

When it comes to developing innovative ways of burying consumers in debt, the credit card companies take the cake. According to MSNBC, credit card fees alone have skyrocketed from $2.6 billion to $21.5 billion since 1980. Plus, in addition to late charges, some credit card lenders add insult to injury by applying interest rates, in some cases as high as 31.99%, to an existing balance!

But, of all of the credit card companies' sneaky tricks, the most egregious by far has to the "universal default clause", a provision that allows lenders to tack on an exorbitant "penalty" interest rate even when the borrower's account is paid on time. That's right. The default clause, a common practice among lenders today, allows for an increase to the ridiculous penalty interest rate if a consumer is late on any of his or her bills, including things like utilities. According to the advocacy group Consumer Action, while most default interest rates hover around 30%, it's not uncommon to see a penalty rate of up to 35%. Some analysts have even reported rates in excess of 40%!

Buried in the fine print, the default clause and other terms and conditions of a credit card account can be easily amended by the lender with a simple written notification that usually accompanies the monthly statement. Some reports suggest that many consumers end up trashing the notification, along with the usual pile of unwanted marketing material enclosed in the envelopes, without ever reading it.

If you have large credit card balances and don't think you can handle your monthly credit card payments doubling overnight, a Home Equity Line of Credit (HELOC) could be less expensive than credit card financing, depending on your situation, and it may even be tax deductible. Of course, that only benefits you if you cut up those cards!




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