Refinancing real estate is a big business. You may have heard the term “conforming” and wondered what a loan would conform to? The answer is that loans that have certain characteristics and are of a certain type of considered confirming and can be sold into the stock and bond market. As a typical mortgage holder, this buying and trading is almost invisible to you and with the exception of possibly a letter saying your loan was sold, everything about the loan stays the same.

Refinancing a home mortgage is much easier than applying for a completely new one. There are two major type of refinancing options. Those where you are simply refinancing to gain a lower interest rate and new loans where you are looking to take out some of your equity in cash.

The first option, that of lowering your interest rate may at first seem like a good deal. Remember however that during the first few years of a loan, the huge majority of the payments all go to interest. By doing a refi, you are able to lower your payment and get a lower interest rate but you also start all over on that 30 year mortgage. So you pay a little less money per month but pay it for a longer period of time. Be certain to check and see if even with the lower interest rate which way actually costs you more in the long term.

Another thing to consider is the cost of the loan. If you’re NOT a long term type or homeowner and plan to move within the next 3-5 years, does refinancing a home mortgage make sense when all the costs and fees are considered?

Taking out equity from your home is another popular reason to consider refinancing a home mortgage. In this scenario, a homeowner isn’t as concerned about lowering their monthly payments but wants cash for a variety of reasons. Once again however, a new mortgage may not be the best solution. Consider a 2nd mortgage. Seconds are typically for 15 years and they have the benefit of preserving your great interest rate on your primary mortgage. There are several types of loans that are essentially a second mortgage on your home.

Anyone considering a home mortgage refinance should look at all the options before making the decision. Know and understand your situation and if you plan on being in the home long term. (>5years). Check out the available options and make the right decision for your situation. Refinancing a home mortgage can make a lot of sense given the right circumstances.

By: Abbie Frank

You hear quite a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, and you’re waiting to move forward till the Fed takes action again. But be smart about waiting and watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.

Who is the Fed? Well, it’s really the Federal Reserve. And when the Fed cuts rates, it usually cuts the Fed Funds Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed Funds Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that really mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest and your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all good.

Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates and are influenced by buyers and sellers in the bond market. Daily movements in the bond market cause mortgage rates to change. That’s why you might get a quote from a loan officer on Tuesday, and on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is good for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market and that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.

Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.

A good loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you want to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic goal. It just means you were lucky. Just stick to your home financing goals and consider the big picture, and you’ll be fine.




By: Kristin Abouelata – Home Loans