Posts filed under ‘Rates’

Why a Mortgage Broker is “the best route.”

Barbara Corcoran regarding Mortgage Brokers on NBC’s TODAY this weekend:
“I’m of the belief that the mortgage broker is the best route. Simply because people lack time and also bank loans have gotten so complicated that you need a specialist to explain every detail to you.  Mortgage brokers earn their keep.”

In addition to the personal service mortgage brokers provide, we are also offered some of the best rates in the industry that we can pass along to you, our client.  Having access to a number of different banks instead of just one means that we can better match your situation to the right terms, right product.  After the loan closing, we are available to answer any questions that you may have.  To finance property in the state of Maine, come to MDI Mortgage for our straigtforward advice and to see that, yes, “a mortgage broker is the best route.”

The interview can be viewed here:  NBC Today

~Sherri Dyer, Advisor & Mortgage Maven

writing for MDI Mortgage, a full service mortgage company located in Bar Harbor, Maine, Mount Desert island

November 15, 2011 at 7:30 AM Leave a comment

What is Happening with FHA and Will it Impact You?

Changes for the FHA program are on their way for April 18th. This video lays out those changes, the impact, and alternatives for borrowers and homebuyers.
From the video:  “In the past few years, FHA loans have seen a remarkable resurgence in popularity.  When most of the low down payment and subprime loan options dissolved, many turned to FHA once again as the answer for homebuyers who might not have 5% or more to put down.  This chart shows that in recent years, FHA accounts for close to 30% of the total purchase mortgage market.

Is all this added business good news for FHA?  Yes and no.  With such demand comes pressure, and it is FHA’s capital reserves which are being pressured currently.  Last fall we witnessed an increase in FHA’s monthly mortgage insurance premium, and in the middle of next month, April 18th, FHA is implementing an additional increase of .25%.

What can we expect to see after April 18th?  The monthly premium will be changing from a factor of .90% to 1.15%.  On a purchase price of $200,000.00, this will result in a monthly insurance increase of $40.21 per month.  Now, $40 may not be considered a great deal of money by some, but it is worthy of some attention if you are about to apply for financing using an FHA guarantee.  If that is the case, it is highly recommended that you apply soon so that an FHA case number can be ordered for you prior to April 18th.

Here’s another way to look at it.  If you were able to spend the extra $40.21 per month as a principal reduction instead of paying for insurance, you would save just under 3 years on the life of your loan, or approximately $15,000 in finance charges over the life of the loan.

It is interesting to note that the cost for PRIVATE mortgage insurance, unlike FHA, has been steadily decreasing recently.  For a similar loan amount, the factor would be .67%, or $107 per month instead of $185 per month with an FHA loan.  Also, FHA has an upfront premium of 1% and the private mortgage insurance does not, so that is an additional savings.   With the private mortgage insurance, however, the typical down payment required is 5% instead of 3.5%, and it must be from the borrower’s own funds instead of from a documented gift like the FHA program allows.

With so many changes occurring in the mortgage world, seemingly at the speed of light, it is so beneficial to have a trusted advisor and partner looking out for your best interest.  At MDI Mortgage, we are happy to review many different loan options with you, making sure that your financing solution is optimal for your entire financial picture and future direction.  

For more details about this change, contact me!”

~Sherri Dyer, Advisor & Mortgage Maven

writing for MDI Mortgage, a full service mortgage company located in Bar Harbor, Maine, Mount Desert island

March 23, 2011 at 8:17 AM Leave a comment

Just What IS Mortgage Insurance, Anyway?

If you have ever found yourself wondering about mortgage insurance, you are in good company.  If I was to make a list of the questions that I have been asked the most frequently over the past 20 years, the very top of the list would include:

  • What is mortgage insurance?
  • What does mortgage insurance do?
  • How much does mortgage insurance cost?
  • Will I need to pay for mortgage insurance?
  • Can I ever get rid of mortgage insurance?

The truth is, it is not only borrowers who find themselves mystified when it comes to the topic of mortgage insurance; many loan officers and bankers struggle with the same questions, so you are not alone.  It’s time to solve the mortgage insurance mystery!

 What is mortgage insurance and what does it do?

Mortgage insurance is a protection for the bank.  It is a policy that allows the mortgage lender to recover part of their financial losses if a borrower fails to re-pay a loan and the lender suffers a loss on the foreclosure.

For some background:  Banks will usually ask that the borrower have 20% down payment or equity in their property.  Why?  This equity cushion can help the bank in the event of foreclosure.  For example, if someone has a mortgage at 80% of the fair market value, and they default and the property is eventually foreclosed on and the bank tries to sell the home at auction, theoretically they can sell the property for an amount to cover the loan, the accrued interest, any late fees, attorney charges and legal fees, etc.  It also can afford limited protection for the bank in the situation of declining real estate values, a climate that we have been dealing with since late 2007 in certain areas of the country.  There is also the real and psychological benefit of “skin in the game”, also known as the borrower has more to lose and therefore might work harder to keep their home.  

Many homebuyers do not have 20% or more to put down when they purchase a home, and that is where the real beauty of mortgage insurance shines.  A loan can be done with less than 20% if the bank can obtain mortgage insurance to cover potential loss.

There are different kinds of mortgage insurance, government and private.  The various programs backed by the government offer guarantees to the bank, and they are through the Veterans Administration (VA) for qualified veterans including those in the National Guard, Federal Housing Administration (FHA) for those buying a primary residence under a certain loan amount, and Rural Development (RD) for those who meet maximum income criteria and whose intended property is located outside of certain, heavily populated metropolitan statistical areas.  For those who might not want or who do not qualify for the government programs, private mortgage insurance is offered through companies such as MGIC, PMI, Genworth, Radian, RMIC and United Guaranty.    It is the bank who chooses which private mortgage insurance company they wish to use, but you aren’t missing out on much when you can’t choose your own company, as the companies all charge similar premiums, and the qualifying criteria are closely aligned across the board.  (There are occasions when one company might allow something that the others won’t, so having access to multiple PMI companies is an advantage and has allowed me to assist with certain transactions that might have hit a roadblock otherwise.)

What mortgage insurance ISN’T:

Mortgage insurance is not property insurance or hazard insurance, it does not protect your real estate.  It is not a life insurance which will pay the balance of your loan in the event of death, it is not a disability insurance which will make your payments in the event you are unable to work.  It does not protect you in any way.  It does nothing for you, EXCEPT, it does give you a house to live in now, even if you do not have 20% saved or access to a gift of 20%.

How much does mortgage insurance cost?*

At the time of this writing, the costs for a few of the more popular scenarios are as follows:

VA funding fee for 0% down loans = 2.15% of the loan amount (which can be financed), no monthly insurance payment added.  (For example, a loan amount of $200,000 x 2.15% = $4300 upfront cost + $200,000 = $204,300 total loan amount, amortized over loan term at going loan rate).

FHA with 3.5% down = 1% of the loan amount up front (which can be financed), with a monthly premium of .90%.  (For example, a loan amount of $200,000 x 1% = $2000 upfront cost + 200,000 = $202,000.00 x .90% / 12 = $151.50 per month)

RD funding fee for 0% down loans = 3.50% of the loan amount (which can be financed), no monthly insurance payment added.  (For example, a loan amount of $200,000 x 3.50% = $7000 upfront cost + $200,000 = $207,000 total loan amount, amortized over loan term at going loan rate).

PMI with 5% down loans = No upfront cost, but monthly insurance at a factor of .94%.  (For example, a loan amount of $200,000 x .94% / 12 = $156.67 per month)

There also exists an option for Lender-Paid mortgage insurance, which will forgo the monthly mortgage insurance premium, but the interest rate might be higher by .25%.

*as you can imagine, there are many variations which can affect the cost, either positively or negatively, but the data provided does at least serve as a good overview.

Will I need to pay for mortgage insurance?

The best way to avoid mortgage insurance is to have a down payment large enough to avoid the need of insurance, or have sufficient equity if you already own the property to be mortgaged.  Other alternatives exist using gifted funds, seller funded second mortgages, or using equity in other real estate owned.  If mortgage insurance is needed, even though it is for the benefit of the bank, the cost gets passed along to you.  The lender-paid mortgage insurance option doesn’t require that you pay for the insurance per se, but you are basically paying for it through a higher rate to the lender.

Can I ever get rid of mortgage insurance?

Yes!  The Homeowner’s Protection Act of 1997 made it mandatory that lenders drop the private mortgage insurance from loans that had a history of being paid as agreed, once they reached a 78% loan-to-value.  At an 80% loan-to-value, the borrower can actively request that the insurance be dropped and not have to wait for the automatic release from insurance at the point of 78% LTV.  (This is advised as it could save 1-2 years of insurance premiums!)  The downside is that the loan-to-value calculation is based on the original acquisition cost, or appraised value from when you first were granted your loan.  If you have done improvements to your home, or you feel that the value has increased through regular market appreciation, you may want to ask that a review be done to see if you might be at an 80% or lower loan-to-value based on the current value.

The funding fee charged at closing by the VA and RD is non-refundable, even if you pay the loan in full one month after closing.  A portion of the FHA upfront fee might be credited if you have an older, existing FHA loan and you refinance into a new FHA loan.

*note, mortgage insurance premiums may be tax deductible based on income requirements, etc.

Deciding on the best option for you is an exercise in analyzing your current budget requirements, probable length of time you will keep the home, probable length of time you will keep the loan, projected prepayments on principal, possible property appreciation, and the likely “freedom date” where you might be at a loan-to-value of 80% or lower.  This is an area where your mortgage advisor can add significant value by suggesting your most advantageous options.

Not everyone loves to talk about mortgage insurance, but at MDI Mortgage, we sure do!  Please let us know what additional questions you may have – we are happy to help and are always ready to decipher the jargon!

  ~Sherri Dyer, Advisor & Mortgage Maven

writing for MDI Mortgage, a full service mortgage company located in Bar Harbor, Maine, Mount Desert island

March 10, 2011 at 7:27 PM 2 comments

Mortgages More Expensive? What’s happening with Risk-Based pricing.

Yes, it’s true.  Mortgage loans are about to become more expensive with the expanding risk-based pricing matrix from FannieMae and Freddie Mac.  This video highlights the upcoming changes:

“First, what is risk-based pricing?  A number of years ago, FannieMae and FreddieMac determined that certain loan characteristics carried more risk, and the borrower, or loan terms, that were in a higher risk category would pay higher costs.  This was generally a fair way to allocate cost.

More recently, they added a quarter point “adverse market” fee.  I like to call this a “the-government-sponsored-agencies-are-losing-to-much-money-and-are-simply-trying-to-cover-some-of-their-losses-fee”.  This pricing hit affected everyone who was granted a conforming loan over the past 2 years.  It may have been in closing costs, or in rate, but it was there, and it was across the board.

As of April 1st, 2011, the risk-based pricing matrix is expanding again, and what was once considered GOOD,  might now be considered high-risk.

For example, a borrower could have an 800 credit score, and have 20% down payment, and this is suddenly risky?  What once had no pricing adjustment now has a charge of .25% of the loan amount.  A loan amount of $300,000 would have added closing costs of $750, or perhaps a rate that is .125% higher, adding to the overall finance charges over the life of the loan.

It is interesting that a 680 credit score was once considered excellent.  Now, you can see that it would carry added closing costs of 1.75%, or $5250 on that $300,000.00 loan (or a rate that might be .25 – .375% higher.)

 Most of the new pricing adjustments are for an extra .25% in costs, across the board.

So, what does this mean? 

If a lender doesn’t sell the servicing to a mortgage, does that mean these fees don’t apply?

Unfortunately, most banks, whether small community banks or larger regional banks, underwrite to Fannie Mae and Freddie Mac standards, and they may sell these loans even though they keep the servicing.  It something that happens behind the scenes, and the borrower may not even realize it.  That will be a good topic to cover in another “Get Inside” video.  Basically, unless the loan is specifically a portfolio loan, also known as an in-house mortgage (and the rates on these types of loans are typically higher anyway), these pricing adjustments will apply.

Are there any ways to avoid paying these risk-based premiums?  Yes! 

A 15 year mortgage, or shorter, term is exempt from these new price adjustments.  Having a higher credit score, and a downpayment of 25% (or equity in the property if it is a refinance, of 25% or more) could be exempt from this new round of “what is a higher-risk loan”. 

A FannieMae Refi plus, and the FreddieMac Relief refinances are not being assessed these extra fees.  Not all the banks are offering these programs, but MDI Mortgage has access to these special, low cost loan programs and we have successfully negotiated some very favorable loan terms for our clients over the past few years.

There may be other options available for your unique situation, as well.  When you contact MDI Mortgage for advice regarding your mortgage financing, we investigate the many different loan options and choices, and present all the information needed in an easy to understand format so that you can be sure that you are making the very best decision, for you.

For more details about this change, contact me — I’m happy to help.”

Sherri Dyer, Advisor & Mortgage Maven

writing for MDI Mortgage, a full service mortgage company located in Bar Harbor, Maine, Mount Desert island

January 28, 2011 at 3:45 PM 1 comment


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Author: Sherri Dyer

Mortgage Maven

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