It is important that consumers who are buying homes or refinancing understand that until a fiduciary relationship (one where the loan officer is working in the best interest of the borrower) becomes law, you are on notice that by not shopping you could be paying hundreds of dollars more per month than need be and paying THOUSANDS of dollars in fees to close your transaction.
Do yourself a favor. Just because someone was referred to you by a close friend, someone at Church, someone at work, school or wherever, it does not mean you will be getting a fair shake.
When today’s rates are around 5.375% and your Note indicates a rate at 6.25-6.5% for a thirty year fixed rate, it should raise a question—you’d think? And people wonder why so much consternation for the lending industry?
Once your transaction is placed in escrow and we are ready to have you sign your documents, escrow is a neutral party and cannot give advice about your loan or whether or not you are getting the best deal you can. That’s the fact, Jack! But, as a fellow blogger and dude who genuinely wants people to get a fair shake, this is the best I can do for you.
Please excuse me as I’m going to my basement to use some fresh bales of hay as a punching bag and listen to some Foo Fighters.
Discuss amongst yourselves.
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19 responses so far ↓
1
disbelief
// Feb 7, 2008 at 8:36 pm
Ah, good post and very thoughtful. Deserves to be posted multiple times for all the people refinancing now. Good work!
2
patient
// Feb 7, 2008 at 9:17 pm
Another thing to keep in mind is that by refinancing a 30y fixed mortgage you are resetting your loan term to another 30y. So if you for example have paid for 10y at 7% you have 20y left. By refinancing to say 5% you will get a lower rate but you add 10y of payments including interest to the bank. In this scenario it’s probably better to refinance for a 15y fixed period to use the low rate advantage to shorten your payment period and the total cost of the loan. Would you agree Tim?
3
just_checking
// Feb 7, 2008 at 9:22 pm
On a related note -
What do you guys think the impact will be on increasing the “confirming loan” limit to $625K as passed by the stimulus package ?
Will it help stabilize the >417K market as the NAR claims ?
4
SLTO
// Feb 7, 2008 at 9:24 pm
May have a lot to do with the lag between loan origination and closing…
5% isn’t that far away…
5
Alan
// Feb 7, 2008 at 10:21 pm
Could you sell a service to people not using you for escrow where you give your opinion on a loan package?
6
S-Crow
// Feb 7, 2008 at 11:36 pm
Just checking– One camp will probably believe that the GSE’s buying these loans will relieve some pressure. Others in lending may also believe that increasing these limits will allow your Jumbo borrowers to refinance into lower rates if lenders re-price their products if this is signed by the President (ie, jumbo rates are currently higher than conforming rates with the current loan limit threshold).
My sense is that NAR is trying to influence anything to kick start the hurting markets and stave off further price declines.
Alan- not while I’m a stake holder in an escrow co. I’m not trying to be Robin Hood here and I’m not opposed to the retail relationship between loan officers and the public. I’m just opposed to the BS talk and special interests in the industry and then see the opposite occur on Settlement Statements. It certainly isn’t everyone.
In other words, I give ZERO credence to what people say they do for their clients, I just watch what they do. That’s all the talking I need. Talk isn’t cheap in this industry, it can be very expensive to those that don’t educate themselves.
7
Brian
// Feb 7, 2008 at 11:36 pm
Anyone want to suggest good mortgage brokers to prospective buyers?
8
Lake Hills Renter
// Feb 8, 2008 at 12:06 am
Decent choice of music, but I prefer Insomnium or Eluveitie. =)
9
Rhonda Porter
// Feb 8, 2008 at 6:53 am
Tim, do you know if they were stated income (yuck) or what their personal scenario was for the loan? Could you see if the lender was receiving a bunch of YSP?
When I was in escrow, I hated seeing high interest rate loans…and it was common for borrowers AT SIGNING (so late in the process) to ask “how does my rate look”? Dude!
10
Rhonda Porter
// Feb 8, 2008 at 7:00 am
patient,
I know you asked Tim this question…however, I’ll offer my 2 cents:
“refinancing a 30y fixed mortgage you are resetting your loan term to another 30y. So if you for example have paid for 10y at 7% you have 20y left. By refinancing to say 5% you will get a lower rate but you add 10y of payments including interest to the bank. In this scenario it’s probably better to refinance for a 15y fixed period to use the low rate advantage to shorten your payment period and the total cost of the loan. ”
This totally depends on what the home owners plans are. If they’re not planning on retiring at the home, they may be better off with the refi. They can invest the savings of the new mortgage payment or apply the difference of the payment towards the principal of the new 30 year to whittle the balance down quicker.
I do like 30 year over a 15 only because you can effectively create a 15 year amortized mortgage by paying the difference in payment towards principal if this is what suits your financial goals. And if you run into a time when you cannot afford a 15 year payment, you can just make the 30. I like flexibility with ones monthly cash flow.
Since we’re talking refi’s, consumers should check out “no cost” refi’s (the cost are rolled into the rate) to compare with a refi w/closing costs.
20 year amortized mortgages are also available (not the same reduction in rate as the 15 or 10).
Nice post, Tim. I feel for ya!
11
Scuba Steve
// Feb 8, 2008 at 7:18 am
Please excuse me as I’m going to my basement to use some fresh bales of hay as a punching bag and listen to some Foo Fighters.
This makes me think of Dwight Schrute for some reason…
[b]Bears. Beets. Battlestar Galactica.[/b]
12
BubbleBuyer
// Feb 8, 2008 at 9:51 am
I think in business and in real estate specially, it is safe to assume that the person sitting across from you is trying to screw you over any and all ways they can. If that person is a mortgage broker, you can be doubly sure this is the case. In fact, the more that person implies they have your best interests at heart the more certain you should be of that.
13
patient
// Feb 8, 2008 at 9:57 am
Rhonda, this is where I disagree. The flexibility you prefer is not for free. It can likely eat up any savings you make on the lower interest rate. The penalties you pay is that you reduce your “forced savings rate” and increase the payoff time and the total amount of interest paid. There is however a way to take advantage of the low interest rate without any of the penalties and that is to swap to a mortgage with a lower term. The lure of the lower monthly cost is seductive but as a borrower you need to be aware that it has a price and make sure you calculate the pros and cons for your situation. The fixation on the monthly cost is a danger that could move us to a society where the individual practically don’t own anything in terms of equity but are instead leasing with interest payments. This is great for the lending industry but pretty sad for the individuals.
14
Joel
// Feb 8, 2008 at 3:56 pm
You mean something like this: FeeDisclosure.com analyzes mortgage fees?
15
dh
// Feb 11, 2008 at 11:24 pm
To Patient…
I think you are missing the point. All Rhonda (and most disciplined investors / buyers) are suggesting is that choosing 30-yrs and resetting the term is potentially costly but that is only if you are not disciplined in “paying down” the principal.
30-year allows flexibility in times of distress, job loss, etc, etc, etc….
However, your point is taken in that may non-savvy people are extending their terms and hence paying more interest, so the wise thing to do if you can handle the higher payment is to actually force yourself into a shorter term than the # of years you previously had remaining.
16
patient
// Feb 12, 2008 at 12:39 am
dh, I can see what you and Rhonda are saying but I think the average savings rate in the US speaks against the likelyhood of any increased cash flow being used to paying down the mortagage. It’s certainly an option for distressed owners but for people with already good cash flow that just want to take advantage of the lower interest rates a shorter term mortgage is often a better plan, don’t you think?
17
WestSideBilly
// Feb 12, 2008 at 9:26 am
For the majority of Americans, this should be past tense.
18
Ira Sacharoff
// Feb 12, 2008 at 9:59 am
That “fixation with monthly payments” is what has led us into this debacle.
The subprime loans were offering zero down loans with adjustable ARMS, or 40 year loans, or interest only loans to keep initial payments down.
On the flip side, 50 years ago, 30 year loans were very rare, terms were much shorter, but folks could still make the payments because home prices were that much lower.
My parents bought their house in rural New Jersey in1955 for 7500 dollars with a 20 year note, and my mom wasn’t working at that time and I think my dad must have been making something like a dollar an hour wage.
So if homeownership is a good thing, then having payments that people can afford is a good thing.
19
Proposed RESPA Reform | Rain City Guide | A Seattle Real Estate Blog...
// Mar 15, 2008 at 2:32 pm
[...] have seen homebuyers or refinancing homeowners become the victims of predatory lenders but you have felt powerless to do anything during the signing due to escrow’s neutral position? Well HUD has some plans for you. Closers [...]
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