Need Mortgage advise and Info?!?

[moniot]

I need advise from someone who understands the ins and outs of mortgages. We have a 2 year adjustable rate mortgage coming due in May. Yesterday I recieved a phone call from our company wanting us to refinance ASAP because federal laws are changing and rates are going up. We are currantly at 7.75%. Our credit was less then perfect but I believe we are in a much better place now. (560 - 570 credit scores)

Now the guy I talked to would not give me any figures until he runs a credit check and we would have to have the house appraised again. (The money for the appraisal would come out of pocket and the refinance charges would be added onto the mortgage) He also tried to explain to me that a 2 year adjustable rate mortgage is like a bandaid for poor credit, giving them a chance to improve their credit and then refinance.

Sure I want a lower interest rate but the guy claimed that even if we get a lower rate the monthly payment may be higher. This would be because of the way an adjustable rate loan is structured. Will my payment go up anyway???

This is so over my head!!

We can't afford a larger payment but I don't want to pay more interest then I have to. We are working on finishing our home. We were planning on having it appraised and refinancing next fall after the basement was finished. That way we could get extra money to build a garage.

We don't know what our next step should be. What happens if we let our current loan ride and then do something later? The finance department talked right over my head.

TIA I just want to be able to make ends meet and still take my family to WDW once a year

More info....We owe 148000 and only have less then 13000 in outstanding debt left on credit cards (had medical issues about a year ago) Our home was appraised at about 160000 before we did any work. The work will add a forth bedroom and 3rd full bath to our walk out basement.

 

[lovemygoofy]

I know that the housing market is slowing down and if you did a subprime mortgage things are heading south with the two big companies.

My first concern would be giving someone over the phone my personal contact information. Is your mortgage office in the town you live in now? I would go to them or call the office and confirm that someone called from that office. There are so many scams going around now that it is easy to fall for it.

 

[ducklite]

First off, take a deep breath. Next, don't believe the scare tactics.

Six questions.

1. How long have you lived in the house and have your mortgage payments always been on time?

2. How long do you plan on staying there?

3. How do you know your current credit score?

4. Do you have an currently deliquent debts, including charge-offs and judgements?

5. How much do you think the house is realistically currently worth? (Like if you had to have a fast sale today, what could you get for it, as opposed to keeping it on the market indefinitely.)

6. What did you pay for it, and what have you done to it since you bought it?

Answer all of that and I can give you some advice. I have an idea that might be great for you if the answers will work for it.

Anne

 

[dis-happy]

I too agree that you should tread carefully.

First of all, I would calculate what your payment is likely to be when the 2 yaer rate goes up. Can you handle the payments?

Second, I would visit a local mortgage broker, tell him you are thinking of refinancing, and see what you would qualify for. They will need to run a new credit check (which you may have to pay for) but at least you'll get a good idea of where you stand. They take more into account than just what your house is worth; your income and credit report will come into play, along with the appraisal. If you like the terms he offers (personally, I'd be looking at fixed rate mortgages) make sure you get a loan with no points. You cannot deduct these from a refi, they have to amoratized. You'll also get an estimate of the total cost to refinance and how it will affect the final amount you'll be paying monthly.

With these two pieces of information, you can decide what you want to do. If your FICO score has gone up you may save money by refinancing. 7.75 is a pretty high interest rate, especially for an adjustable rate mortgage. Ask for a copy of your credit report (you could do this now, pay for it) and make sure it is accurate.

Good luck!

 

[moniot]

I know that the housing market is slowing down and if you did a subprime mortgage things are heading south with the two big companies.

My first concern would be giving someone over the phone my personal contact information. Is your mortgage office in the town you live in now? I would go to them or call the office and confirm that someone called from that office. There are so many scams going around now that it is easy to fall for it.

I did verify. They are not local and they already had all my information. I took down his name and number, called and verified then I called him back.

 

[seashoreCM]

Is the whole thing coming due in one fell swoop no questions asked (a balloon note) or just a rate change happening in May?

Since you said you need mortgage advice I suggest that you engage an attorney to guide you through the refi' process and tell you the meaning of all the paperwork. There are lots of shady characters out there.

My gut feeling is not to go with an on line mortgage company. Deal with somebody in town.

If you had a subprime mortgage loan and the company went bankrupt, that should not affect your payment schedule for better or for worse.

Disney hints: http://members.aol.com/ajaynejr/disney.htm

 

[moniot]

First off, take a deep breath. Next, don't believe the scare tactics.

Six questions.

1. How long have you lived in the house and have your mortgage payments always been on time?

We have lived here for almost three years. Payment always within the grace period.

2. How long do you plan on staying there?

The rest of our life.

3. How do you know your current credit score?

Our credit card has that information for us.

4. Do you have an currently deliquent debts, including charge-offs and judgements?

Nothing now Five years ago we had some trouble.

5. How much do you think the house is realistically currently worth? (Like if you had to have a fast sale today, what could you get for it, as opposed to keeping it on the market indefinitely.)

$175000 would be a realistic guess

6. What did you pay for it, and what have you done to it since you bought it?

We paid about $130000. We owned the 10 acres and already had the well and septic. We added a split level entry with a covered outside entry deck, a large deck with a BBQ area, a smaller lower deck next to the pool and an even small, even lower deck with a hot tub. The basement is a walk out (two doors) and will soon have finished bedroom, full bath with a whirlpool tub and seperate shower, a storage room, a family room and a large work shop. We have almost all the stuff to finish.


Answer all of that and I can give you some advice. I have an idea that might be great for you if the answers will work for it.

Anne

Thank you !!!!

 

[ducklite]

Your answer is an FHA loan.

There is no minimum credit score, as long as you don't have any outstanding deliquencies. Having at least a year of on time payments and having always made the mortgage payment on time is a really, really good thing with them.

If you monthly payment is staying the same or going lower, they will use that as a compensating factor, even if the ratios are higher than what they normally look for.

The rates are in the low 6's for a 30 year fixed.

Please call your bank and speak to a mortgage loan officer. If they don't do FHA, ask for a referral to someone that does.

You are the PERFECT FHA borrower. Someone who has had financial problems in the past but has cleaned them up and takes maintaining thier credit in good standing seriously.

Good luck!

Anne

 

[PrincessDadx2]

You need to have some basic information:

1. What is the index for your loan and what is its current rate? Most loans are indexed to the 1 yr treasury, libor, or prime.

2. What is the margin for your current loan? This is the amount added to the index to come up with your rate.

For example if you index is prime which is currently 8.25% and the margin is +3% then your new rate is 11.25%

3. Are there any interest caps on your current loan? Many adjustable rates have caps of 2% per year and 6% lifetime to cushion payment shocks for borrowers.

All of this information will be in the mortgage note that you signed at closing.

With this information you can calculate what your new payment will be by taking the new rate, remaining balance and remaining term (28 years) in a mortgage calcualtor.

Then you need to compare this to other options. For example, I would not pay $5,000 in closing costs and get a new 30 year loan if the payment is only going up $10 per month.

If you can post the details the board can probably help. If you are going to stay in the house "forever" then moving to a fixed rate may make a lot of sense. FHA may be a good option for you, but you will pay significant default insurance premiums that you may be able to avoid.

 

[tar heel]

It sounds like your caller was working on commission. Federal laws have NOT changed. Interest rates have gone up in the past two years, but how much depends on what your adjustable rate is tied to. If your credit is decent now, there is a really good chance that you could refinance for lower fees than this guy is talking about. Think about -- why would your company want to lower your rate unless there was something in it for them? Obviously, they think they can make more $ off you by refinancing you than by raising your rate.

 

[Lisa_M]

Your answer is an FHA loan.

There is no minimum credit score, as long as you don't have any outstanding deliquencies. Having at least a year of on time payments and having always made the mortgage payment on time is a really, really good thing with them.

If you monthly payment is staying the same or going lower, they will use that as a compensating factor, even if the ratios are higher than what they normally look for.

The rates are in the low 6's for a 30 year fixed.

Please call your bank and speak to a mortgage loan officer. If they don't do FHA, ask for a referral to someone that does.

You are the PERFECT FHA borrower. Someone who has had financial problems in the past but has cleaned them up and takes maintaining thier credit in good standing seriously.

Good luck!

Anne

I thought FHA was for first-time homeowners, not refinances, but I don't really know.

OP, I would look into refinancing into a fixed rate. If you get into another ARM, you will be dealing with this again, and again.

 

[ducklite]

I thought FHA was for first-time homeowners, not refinances, but I don't really know.

OP, I would look into refinancing into a fixed rate. If you get into another ARM, you will be dealing with this again, and again.

The beauty of FHA is that it is not restricted to first time buyers, and has no income restrictions. The only thing you can't do with FHA is take cash-out on a re-fi, although they do have a program that will give cash-out for a rehab.

When I was writing loans I helped several customers in a similar situation as the OP get away from the predatory sub-prime lenders by placing them into FHA fixed rate loans.

Anne

 

[CarolA]

WARNING WILL ROBINSON!!! DANGER!! LOL!

What "law change" is he talking about? There is NO law that raises interest rates. (That's done by the Federal Reserve)

Any "you have to do it now" sales pitch means "I need you to do it now for MY pocketbook"

You need to pull your orignal mortgage and READ it. Somewhere in there it tells you what they can do at year three..... I have a 5 year ARM with a cap. (Can't recall what it is, but they can only raise my rates so much per year. ) Right now it's borderline for me to re-fi and I have three years to go. (If I had a crystal ball, I would know if I should re-fi or not) Also SOME of those two years ARMs have penalties you have to pay if you re-fi early. For all you know this company just wants the penalty payment!

 

[moniot]

You need to have some basic information:

1. What is the index for your loan and what is its current rate? Most loans are indexed to the 1 yr treasury, libor, or prime.

The current interest rate is 7.75% My paper say "The "Index" is the average of interbank offered rates for six month U.S. dollar-denominated deposits in the London market ("LIBOR") ......is that what you needed??

2. What is the margin for your current loan? This is the amount added to the index to come up with your rate.
For example if you index is prime which is currently 8.25% and the margin is +3% then your new rate is 11.25%

Under calculation of changes my papers say.......Before each change date, the note holder will calulate my new interest rate by adding siz and one-quarter percentage points (6.250%) to the current index. The note holder will then round the results of this addition to the nearest one-eighth of one percentage point (0.125%). Subject to the limits stated in the Section 4(D) below, this rounded amount will be my new interest rate until the next change date.

3. Are there any interest caps on your current loan? Many adjustable rates have caps of 2% per year and 6% lifetime to cushion payment shocks for borrowers.

Papers state....The interest rate I am required to pay at the first change date will not be greater than 9.25% or less then 7.75%. Thereoafter, my interest rate will never be increased or decreased on any single change date by more than one and one-half percentage points (1.500%) from the rate of interest I have been paying for the preceding six months. My interest rate will never be greater than 14.75% or less than 7.75%.

All of this information will be in the mortgage note that you signed at closing.

With this information you can calculate what your new payment will be by taking the new rate, remaining balance and remaining term (28 years) in a mortgage calcualtor.

Then you need to compare this to other options. For example, I would not pay $5,000 in closing costs and get a new 30 year loan if the payment is only going up $10 per month.

If you can post the details the board can probably help. If you are going to stay in the house "forever" then moving to a fixed rate may make a lot of sense. FHA may be a good option for you, but you will pay significant default insurance premiums that you may be able to avoid.

My change date is june 1st 2007.

Reading my papers it looks like if I don't do something different my payments starting 07/01/2007 will go from $1076.77 to $1230.66 for 6 payments then I have 329 payments of $1269.91 and than one of $1254.37.

Thank you everone for your help. If it makes any difference at the bottom of my papers is says AHL modified FannieMae 3520

 

[kribit]

company just wants the penalty payment

That was my first thought. An old neighbor of mine refinanced out of a subprime mortgage but had to pay a 12k pre-payment penalty. I have serious issues with some of these subprime lenders, but sadly there are many people out there that need them right now (hard times etc...). Don't let this mortgage broker bully you. If you've paid your mortgage on time, you shouldn't have an issue getting into a decent loan or an FHA as Ducklite mentioned.

 

[ducklite]

My change date is june 1st 2007.

Reading my papers it looks like if I don't do something different my payments starting 07/01/2007 will go from $1076.77 to $1230.66 for 6 payments then I have 329 payments of $1269.91 and than one of $1254.37.

Thank you everone for your help. If it makes any difference at the bottom of my papers is says AHL modified FannieMae 3520

Sounds like your rate will adjust every six months after the first adjustment.

Does it have anything about a pre-payment penalty?

Anne

 

[seashoreCM]

Some rough figures for your existing loan.

A quick check of the LIBOR index for 6 month securities shows it to be about 5.25%. Adding the 6.25% margin you stated we get a magic number of 11.50 which would be a preliminary rate calculation. You are at 7.75 and there is a cap of 1.50% per change period which you stated. So your rate starting in June (first payment at that rate due July 1, 2007) will be 9.25% instead of 11.50%. Six months later (Jan 1, 2008), assuming the LIBOR index stays the same, your rate will rise another 1.50% to 10.75%. Six months later your rate rises to 11.50% which is the magic number now less than 1.50% away from where you are last.

(I am not sure what the monthly payments would be under these interest rates. A mortgage banker or even any banker could tell you if you give your balance and the loan amortization term, probably 360 months, 320 months remaining as of today).

The problem with many of the loans of this type is a prepayment penalty that cancels out the 7.75% rate you had for the first 2 years. Your loan may or may not have this.

Also the 6.25% margin sounds suspiciously to me like subprime. Regular adjustable rate mortgage loans (ARM's) have margins around 2.50 to 3.00%.

 

[bellarella]

Are you in an interest only mortgage? Your broker said that your monthly payment could go up even if you found a rate that was lower because of the way your loan was structured.

That sounds like you may have an interest only mortgage where you are only paying the interest due on the loan and not the principle for the period of the initial rate. That means if you refi into a "traditional" mortgage you could pay more even if you have a lower rate because you will be paying towards principle as well. It also means that when your rate adjusts with your current mortgage you may see a much bigger than expected monthly payment because you will not only be paying the increase in interest, but you will have to start paying principle as well -- and that principle will be amortized over the remaining life of the loan not the original loan period.

 

[Bren's Mom]

You've already gotten some excellent advice...I just wanted to add that the 'credit score' you got from your credit card may not be your actual FICO score. It's probably their own internal score and your actual could be +- 100 points. You can purchase your actual score from myfico...and you can get a free copy of each of your credit reports from annualcreditreport.com. I'd suggest at least seeing your own reports...confirm that there is nothing currently delinquent, no outstanding collections, etc. There are often errors on credit reports!

 

[tar heel]

I would make 100% sure there's not prepayment penalty, then I would go elsewhere. That is a really nasty adjustable b/c it can never go down, has a really high margin and adjusts so frequently. We have an adjustable that we will refinance this year, but it went down so drastically two or three years ago that we're not yet back to our original rate!