With rates dipping again last week I have been getting (and making) quite a few calls from past clients asking if it is worth
refinancing their 30 year fixed mortgage. Honestly it is a pretty simple question to answer in most situations. There are
three questions that I ask in order to start the process.
How long do you intend to stay in this house (or hold on to the mortgage if you plan to move, but hold it as a rental)?
Are there any additional debts, loans, etc. that are currently at higher interest rates than your mortgage that we could roll
into your mortgage payment and lower your monthly bills?
What do you think your house is worth these days based on sales activity in your neighborhood? (More importantly than
our opinion of value is the opinion of a licensed appraiser, but an educated guess is a great start.)
Once these are answered it comes down to the numbers. Let's look at a few examples.
Current 30 year fixed loan Example 1 Example 2 Example 3 Example 4
Original Loan Amount $200,000.00 $300,000.00 $200,000.00 $300,000.00
Length of time in this loan 1 year 1 year 3 years 3 years
Interest Rate 6.375% 6.375% 6.50% 6.50%
Monthly Payment (P&I) $1,247.74 $1,871.61 $1,264.14 $1,896.20
New 30 year fixed loan Example 1 Example 2 Example 3 Example 2
Current Principle Balance $197,850.00 $296,785.00 $192,750.00 $289,100.00
Cost of Refinance $3,000.00 $3,200.00 $3,000.00 $3,200.00
New Loan Amount $200,850.00 $299,985.00 $195,750.00 $292,300.00
New Interest Rate 5.75% 5.625% 5.75% 5.625%
Monthly Payment (P&I) $1,172.11 $1,726.88 $1,142.34 $1,682.64
Monthly Savings $75.63 $144.73 $121.80 $213.56
Months to Break Even 39.7 22.1 24.6 15.0
Typically a break even of 30 months or less is a good refinance, but of course it comes down to how long you are going
to be in the house. Call me if you have questions about your current situation.
refinancing their 30 year fixed mortgage. Honestly it is a pretty simple question to answer in most situations. There are
three questions that I ask in order to start the process.
How long do you intend to stay in this house (or hold on to the mortgage if you plan to move, but hold it as a rental)?
Are there any additional debts, loans, etc. that are currently at higher interest rates than your mortgage that we could roll
into your mortgage payment and lower your monthly bills?
What do you think your house is worth these days based on sales activity in your neighborhood? (More importantly than
our opinion of value is the opinion of a licensed appraiser, but an educated guess is a great start.)
Once these are answered it comes down to the numbers. Let's look at a few examples.
Current 30 year fixed loan Example 1 Example 2 Example 3 Example 4
Original Loan Amount $200,000.00 $300,000.00 $200,000.00 $300,000.00
Length of time in this loan 1 year 1 year 3 years 3 years
Interest Rate 6.375% 6.375% 6.50% 6.50%
Monthly Payment (P&I) $1,247.74 $1,871.61 $1,264.14 $1,896.20
New 30 year fixed loan Example 1 Example 2 Example 3 Example 2
Current Principle Balance $197,850.00 $296,785.00 $192,750.00 $289,100.00
Cost of Refinance $3,000.00 $3,200.00 $3,000.00 $3,200.00
New Loan Amount $200,850.00 $299,985.00 $195,750.00 $292,300.00
New Interest Rate 5.75% 5.625% 5.75% 5.625%
Monthly Payment (P&I) $1,172.11 $1,726.88 $1,142.34 $1,682.64
Monthly Savings $75.63 $144.73 $121.80 $213.56
Months to Break Even 39.7 22.1 24.6 15.0
Typically a break even of 30 months or less is a good refinance, but of course it comes down to how long you are going
to be in the house. Call me if you have questions about your current situation.
Topic 1 - Should I refinance my 30 year fixed mortgage?
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I am totally focused
on my client's
needs, and I work to
realize their dreams
as if they were my
own.
on my client's
needs, and I work to
realize their dreams
as if they were my
own.
Young Lim,
Mountain Realty, LLC
Mountain Realty, LLC
Welcome to:
| Young Lim Realty |
Topic 2 - Fed Interest Rate Reductions Explained
I am sure you have been hearing the news over the last couple of weeks that interest rates are going down “today” or “this
week”? Is it confusing to you when you start reading the paper or online articles to figure out what is truly happening
when the Fed “lowers interest rates”? If so, here is a very simplified explanation of what the Fed is really doing. It is
easier than getting into the details. You can leave that up to me and your financial advisor.
Historically economies have had a natural tendency for large upswings and downswings. When the economy is booming
it feeds on itself to a point that it is over inflated and then plummets - as displayed by the great depression of the 1920's-
30's. This is a normal cyclical behavior of an economy.
Economists got together (a long time ago) and sought to introduce a level of manual control over this phenomenon. The
thought is this - if we raise the federal interest rate when the economy is in an upswing, this will slow down growth. And
when the economy is going down, we can lower the rate to encourage borrowing and spending which promotes growth.
This way, although there are still peaks and valleys, they will be gentler slopes and the deviation will be at a much
smaller percentage.
The Fed interest rate or federal funds rate is the basic rate that banks charge each other for borrowing money. If this is
raised all other short term interest rates (prime rates etc) will rise because they are dependent on this. Now that the
economy is slipping downward, the Fed keeps lowering the federal funds rate in an effort to stimulate the economy.
When short term rates are low it entices people to borrow money and spend. The biggest misconception is that this
reduction has a direct correlation to long term interest rates, ie. a 30 year fixed rate mortgage. Long term interest rates
are tied to mortgage backed securities which is another topic for another month. So, when you hear the Fed lowered
rates by .5% this morning that does not mean that the 30 year fixed rates just dropped .5%-- it does however mean that
your home equity line of credit (if based on Prime--which most are) just lowered by .5%.
week”? Is it confusing to you when you start reading the paper or online articles to figure out what is truly happening
when the Fed “lowers interest rates”? If so, here is a very simplified explanation of what the Fed is really doing. It is
easier than getting into the details. You can leave that up to me and your financial advisor.
Historically economies have had a natural tendency for large upswings and downswings. When the economy is booming
it feeds on itself to a point that it is over inflated and then plummets - as displayed by the great depression of the 1920's-
30's. This is a normal cyclical behavior of an economy.
Economists got together (a long time ago) and sought to introduce a level of manual control over this phenomenon. The
thought is this - if we raise the federal interest rate when the economy is in an upswing, this will slow down growth. And
when the economy is going down, we can lower the rate to encourage borrowing and spending which promotes growth.
This way, although there are still peaks and valleys, they will be gentler slopes and the deviation will be at a much
smaller percentage.
The Fed interest rate or federal funds rate is the basic rate that banks charge each other for borrowing money. If this is
raised all other short term interest rates (prime rates etc) will rise because they are dependent on this. Now that the
economy is slipping downward, the Fed keeps lowering the federal funds rate in an effort to stimulate the economy.
When short term rates are low it entices people to borrow money and spend. The biggest misconception is that this
reduction has a direct correlation to long term interest rates, ie. a 30 year fixed rate mortgage. Long term interest rates
are tied to mortgage backed securities which is another topic for another month. So, when you hear the Fed lowered
rates by .5% this morning that does not mean that the 30 year fixed rates just dropped .5%-- it does however mean that
your home equity line of credit (if based on Prime--which most are) just lowered by .5%.
Topic 3 - 5 FACTORS OF CREDIT SCORING
What exactly makes up whether our scores are great, good, or not so good? Credit scores are a large factor in
determining the types of loans a person can qualify for and it seems that to most people the score and process for
accumulating the score are a mystery. I figured that this would make an excellent topic for this month's feature.
Hopefully this will help to take some (if not all) of the mystery out of it for you.
Payment History has a 35% impact. Paying debt on time and in full has a positive impact, and late payments,
judgments and charge-offs have a negative impact.
Outstanding Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important.
Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account; the debt ratio
will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and
score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit
company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry.
Length of Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A
seasoned borrower is stronger. Opening new credit cards will decrease the average length, and therefore hurt this
portion of the score.
Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a
concentration in credit cards only. Careful, too, when getting credit at a store that is not a department store: the credit
agencies frown on cards for more specialized stores where you are likely to only make one purchase, as they seem to
show desperation.
Inquiries have a 10% impact. Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries
receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as
only 1 inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquiries beyond that in a six
-month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.
For more information, visit www.myfico.com.
determining the types of loans a person can qualify for and it seems that to most people the score and process for
accumulating the score are a mystery. I figured that this would make an excellent topic for this month's feature.
Hopefully this will help to take some (if not all) of the mystery out of it for you.
Payment History has a 35% impact. Paying debt on time and in full has a positive impact, and late payments,
judgments and charge-offs have a negative impact.
Outstanding Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important.
Keeping that below 50% is wise and below 30% even wiser. It is never a good idea to close an account; the debt ratio
will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and
score. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit
company to increase your available credit to lower the debt ratio, provided they can do so without a hard credit inquiry.
Length of Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A
seasoned borrower is stronger. Opening new credit cards will decrease the average length, and therefore hurt this
portion of the score.
Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a
concentration in credit cards only. Careful, too, when getting credit at a store that is not a department store: the credit
agencies frown on cards for more specialized stores where you are likely to only make one purchase, as they seem to
show desperation.
Inquiries have a 10% impact. Hard inquiries for credit will negatively impact the score. Auto and mortgage inquiries
receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage and will be treated as
only 1 inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquiries beyond that in a six
-month period will have no further impact on the borrower. Each hard inquiry can cost 2-50 points on a credit score.
For more information, visit www.myfico.com.
Topic 4 - Conforming Loan Limits Increased?
Conforming Loan Limits Increased?
Have you been confused lately with all the rumors and news about the Stimulus Package signed into law in early
February? Don’t worry, you are not alone. I have been reading the news daily and asking questions of the lenders that I
use and honestly the answers are still unclear. Below are excepts from an article I found by Kathy M. Kristof, Los
--- Congress' plan to help the jumbo-loan market -- passed two weeks ago as part of the Economic Stimulus Act – is still
a work in progress.
Key details of the plan were left to the Department of Housing and Urban Development to nail down, which may take
until next month.
--- under (current) federal rules, Fannie Mae and Freddie Mac couldn't buy loans larger than $417,000 -- the limit for
what was labeled a "conforming" mortgage. The Economic Stimulus Act gave HUD the ability to boost conforming
loan limits in high-cost areas to as much as $729,750 through the end of this year. But Congress left it to HUD to set new
conforming-loan limits by region, based on a formula that takes into account the median home price in each region.
The department has 30 days from Feb. 13 to revise the loan limits. HUD officials said this week that they had not yet
come up with numbers. The department is expected to set new conforming limits on a county-by-county basis, just as it
does for Federal Housing Administration-insured (FHA) loans.
--- Loan balances, however, are just one component of what makes a loan conforming. Other issues include the type of
income documentation provided and a borrower's credit score. Even if Freddie Mac and Fannie Mae begin buying
significant numbers of larger loans, it isn't clear how significant an interest saving that will mean for borrowers.
Have you been confused lately with all the rumors and news about the Stimulus Package signed into law in early
February? Don’t worry, you are not alone. I have been reading the news daily and asking questions of the lenders that I
use and honestly the answers are still unclear. Below are excepts from an article I found by Kathy M. Kristof, Los
--- Congress' plan to help the jumbo-loan market -- passed two weeks ago as part of the Economic Stimulus Act – is still
a work in progress.
Key details of the plan were left to the Department of Housing and Urban Development to nail down, which may take
until next month.
--- under (current) federal rules, Fannie Mae and Freddie Mac couldn't buy loans larger than $417,000 -- the limit for
what was labeled a "conforming" mortgage. The Economic Stimulus Act gave HUD the ability to boost conforming
loan limits in high-cost areas to as much as $729,750 through the end of this year. But Congress left it to HUD to set new
conforming-loan limits by region, based on a formula that takes into account the median home price in each region.
The department has 30 days from Feb. 13 to revise the loan limits. HUD officials said this week that they had not yet
come up with numbers. The department is expected to set new conforming limits on a county-by-county basis, just as it
does for Federal Housing Administration-insured (FHA) loans.
--- Loan balances, however, are just one component of what makes a loan conforming. Other issues include the type of
income documentation provided and a borrower's credit score. Even if Freddie Mac and Fannie Mae begin buying
significant numbers of larger loans, it isn't clear how significant an interest saving that will mean for borrowers.
