OK I'll bite...

"1- Most loans are paid in arrears, at the end of each month. So when you refi, you don't pay until the end of the month you refi'ed in. So it is kind of like skipping a payment"


Please offer a more detailed explanation. My head is slightly tilted.

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern

Great timing - just contracted on a new house last night.

If this is my long-term house, say 20 years, is there any reason why in this economic climate with low rates that I should NOT use a 30-year fixed? This is a jumbo loan with min. 20% down. I've been quoted 5.75-5.875% from my local bank where I have all my accounts.

Also, I'm floating the down payment with a home equity credit line on my current house (I am assuming the risk of sale -- no contingent contract). I have found a bank that will open the credit line with no closing costs. Any structure where I can freeze the first three months of repayment on the credit line so that I am not repaying 3 different loans all at once?

Thanks all!

Jim, its a tad complicated, but follow along.

A long time ago you bought your house on the first day of January. you live there for a month, and at the end of the month, January 31, you pay your payment for that month you just spent in the house. On Feb 28th you pay for having lived there (had the loan) during February. Etc...

You decide to refinance many years later in June. You have already made your May payment on May 31. It is around June 24th once all the paperwork is finished. you would normally make your June payment around June 30. But your loan is refinanced, you close on June 26th, and the loan you make payments to no longer exists. With any luck you have your "mortgage payment" in the bank, ready to be pulled out in a few days. But it doesn't pull out.

Your new loan, cleverly enough, included a few days of prorated mortgage for the last few days of the month of June. (and for the fact checkers, the whole June payment is wrapped into the whole loan payoff.), so your free and clear as far as paying anything for June. Well, in july, you don't pay, as usual, until the end of the month you have the loan. So on July 31, you make your new mortgage payment, and another on Aug 30, etc. ad infinitum.

So in summary, you made your payment on May 31, and not again until July 31. You 'skip' your june payment. But really it was just rolled into your loan, so you still eventually have to pay it. Monetarily you are no further ahead. It isn't free mana from the skies, and if you were intent on paying stuff off quickly, you would take that June money from the bank and promptly apply it towards the principle of your loan and be in the same boat you were in before. Or you could use this extra cash on hand at a very low interest rate to pay off high interest credit cards. Or go on a mexican cruise like the last couple I refinanced.

This scenario holds true for many, but not all, loans. All FHA loans are like this, but only some conventional loans are. Other loans yet require the payment for 'june' be brought to the table as a closing cost, which your broker will probably not want to foot the bill for (as in a free refi) unless he is getting paid a bunch on the back, in which case you probably aren't getting the best interest rate, and you really aren't gaining anything.

Ultimately, finding a broker who knows his stuff and is honest is your best bet. Good luck. Surprisingly, they are few and far between. I hope that answers your question Jim Mishler.

The rate seems a little high, but I only broker in Utah and Oregon which may have lower rates in general than other parts of the US.

I'll give you one reason to NOT use a 30-year fixed. That's a long time. Change it to a 20-year fixed and you will get a slightly better interest rate, have an easier time qualifying (if you are a marginal cantidate), and save several tens of thousands of dollars in interest. Have your broker/bank give you a GFE (good faith estimate) for a 20 fixed and 30 fixed and whatever rates they are offering, and find the column that shows total interest to be paid during the life of the loan.

For a 300k loan at 5.75 your monthly payment is 1750. The same loan at the same interest rate for 20 years would be 2100. Thats a chunk of change. But, on the 30 year loan you pay $330,000 in interest, and the 20 year loan you pay $205,000 in interest. If you can somehow manage to pay a little bit more each month, you can save more than a little bit.

Now that is a pretty hefty financial decision, but at least something that should be considered when buying a house. So sell the second car, ride your bike everywhere, and when you own your house outright at the end of 20 years, you'll be in great shape and will have an extra $125,000 towards your retirement.

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As for your other question, RA, it depends a lot on whether or not you are selling house number 1, how soon after buying house number 2, and what kind of prepayment penalties the HELOC has (Home Equity Line Of Credit). You are going to have a hard time finding someone to lend you your Down without interest for 3 months. You may also run into problems with where you Down is coming from. Some banks require 2 month seasoning (it can't be a gift or loan, unless you wait for 2 months.) You may consider an 80-20 loan. Your interest rate on the 20% would be high, but you could pay it off with your equity from house #1 when it sold. There are a lot of ways to do this. The best is probably to sell your house first, then find a house to buy. It sounds lame, but may be far simpler and cheaper.

Jim -

Since you're in the business ... what's the basic deal on a mortgage loan for a second/vacation property. I'm thinking about a small plot (2acres) on a lake near one of my favorite running trails where I'll build a rustic cabin (probably about $65-75K fmv for the land and improvements). If there is such a thing, what is a "typical" loan product for a second home? higher rate? more down payment? shorter term? [Yes, I already have a mortgage on my primary residence, and a HELOC w/ a $0 balance.] Right now this is a pipe dream, but I'm hoping that if I keep driving my 1989 Toyota pickup, I could turn the anticipated car payment into a cabin payment!

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kangaroo -- please do not read or respond to any of my posts

I'm a wholesale AE with a conforming lender, let's talk.

gregs@roseloans.com

Agreeing that looking at shorter loan terms can be worth the money. We started out with a 7% 30 year loan in 2001. Refinanced to a 15 year 4.875% note in 2003. We now pay about $100 more a month than we did on the 30 year note, but will save something like $100K on interest over the course of the loans.

The 15 year amoritization schedule is also nice. Once you get past the first year, more than half of the non-escrow part of the payment goes towards principal. If we'd been on the 30 year note still, more than 80% of the payment would be going to interest. Yeah, some people have tax implications with the lower interest payments, but for us, the tax issues don't apply. We're gaining equity so much faster this way. (good because we aren't always going to be gaining so much equity the other way. Everyone seems to agree that we aren't going to be seeing too many more years where home prices go up by 40% and that the local market will normalize)

Brian,

I'm a wholesale ae with a conforming lender, let's talk.

gregs@roseloans.com

If you can...give me a call...or message direct. Direct contact data is on the homepage of the website. Several issues and possibilities here.

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern

Bingo.

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern

Actually, 10% down will not cover the pmi unless the total amount you are borrowing has been broken into two loans. PMI is waived only when you have loans 80% and less than the appraised value of the house. If a lender or broker says they are waiving pmi, the payment for such is built into the rate. There are several reasons why this is becoming more prevalent, most of them bad for the borrower.

If you are putting 10% down, have decent or even bumpy credit, and have a few months payments in reserve after you settle on the property, make sure you tell your broker to put you into a conforming loan program. If he doesn't know what that is, walk out and find another.

I am an account executive for a mortgage lender. I do not deal with the individual borrower. I work with the brokers placing these loans.

Greg in Chicago

Short answer is lots of options...depending on all the variables. There are literally dozens of programs available to get it done. I'd be more than happy to review with you. Feel free to call or message. The details are not for public disclosure...in either direction.

Contact data is on the homepage of the website. I can't give you a definite answer. No one can with any degree of accuracy until more pieces of the puzzle are on the table in front of me.

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern

The easy way to explain what Ben is saying is that you pay your mortgage in arrears, yes, but you also pay what is called pre-paid interest. So, if you refinance on the 1st of February, you will pay 27 days of pre-paid interest and not have a payment due until April 1st. So, if you have equity in your house, you will save some money by not paying your February payment (it will be included in your closing costs as pre-paid interest) and you will not pay your March payment. When you go to sell your home, that is when the bank will make its money back because you will pay for the use of the home until the day the mortgage is paid off. It is a good situation to get you out of a short-term problem but they are definitely going to make their money back.

RA,

There are so many different option to look at that a post like this can not answer all of your questions. Every client that I do a home purchase for, I sit down with him/her/them for at least an hour to go over financial goals. It is best to talk to your loan officer and your financial analyst at the same time. If you can get a 5 year ARM at 5%, pay the interest only payment, and take the money that you are saving and invest it at 6.5% return, does that not make sense? There is no reason to pay down the equity in your house if you can invest your money in something where you are going to make a bigger return. nless yo are in a market home values are declining, you are going to make more money on your house if you sell anyhow as long as it is at least three years down the road. So many different options. Please, please, please do a ton of research on this. Talk to different loan officers and your CFA or CFP. Mortgage people on this site will hate me but shop around for your best mortgage deal. It is very competitive out there and people who want your business will come to the table. Please feel free to PM me if you need some help.

FLA Jill,

Is your goal to pay your house off? Then you will have 'x' amount of dollars sitting there that you are not touching? If you have equity in your home, think about it as a bank. Borrow money against it and invest it. If you can invest at a low rate, like a home equity line of credit, take that money and invest. Sure, you are giong to feel good if you ever sell your home and you have all of that equity, but think about waht that money could have done in an investment for 5, 10, 15 years? Then, when you sell, unless you reinvest you are going to pay capital gains. If home values are escalating at 40%, no reason whatsoever to pay your mortgage off. Invest.

Chitown,

Not true at all. there are plenty of loans out there that do not have PMI that are above 80%. There are numerous short-term loans that will go to 100% without charging PMI. That is a huge misconception in this business. There are plenty of Alt-A lenders and specialty financing groups that do it without any charge to the rate. Will there be a pre-payment penalty? Sure but if you are planning on staying in the home for more than two years, it is transparent.

Got to admit Ben...you've still got me scratching my head.

But I've only originated/closed about 1500 hundred so far. And I'm with an FHA Direct Endorsed lender.

I think I see where you are trying to go with that...but a lot is being lost in the translation. I know full well the process of interest adjustment on a REFI. I'm also familiar with which programs, lenders and/or servicing banks require payments to begin the month after closing and which do not. I'm also pretty familiar with how HUD handles the up front MIP on an FHA loan which is paid off, and how the new rules are affecting return of anything remaining in the escrow account.

I don't want this to be taken as a disparaging comment. But...I'm seeing a lot of specific information being provided, well intentioned as it may be, without it would appear, a complete status review being done on behalf of those requesting information to know the complete picture.

I simply won't do that. I am very uncomfortable with some of the recommendations I am seeing in this thread. That is not a specific comment towards you....just a general observation.

I am closing my participation in this thread with this:

For the benefit of anyone reviewing this thread...do not accept as gospel, financial recomendations based on incomplete information, here, or anywhere.

Anyone offering comments about specific interest rates, charges or closing costs, loan down payment requirements, PMI-private mortgage insurance, escrow accounts, pre-payment penalties,or any of the literally dozens of factors involved in a mortgage without having completed a full review of all applicable issues, is therefore offering incomplete information in return, which if followed could cause significant financial loss.

Thank You,

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern

Not charging pmi to the customer doesn't mean there isn't pmi. It means the lender pays it and either the broker pays for it through ysp or the customer pays for it through rate. Compare ysp's, payments and you'll see the difference. Also, charging a prepay is, in effect, guaranteeing the sub prime program makes the money to cover the cost of the pmi.

It's there, trust me.

Short term loans like bridge and construction are different animals.

Greg

Here here Jim. Very well put. In addition to Jim's comments, please treat your mortgage as the most important and biggest investment that you will make in your life because the chances are that it is.

Chitown,

I will agree to disagree with you. PMI is not mandatory in any form. But we can agree to disagree and still get along right? I, as well as Jim, are done commenting on this topic. Anyone feel free to contact me with any questions. PM me if you would like and would be more than happy to give you my toll-free number at work. Good luck to everyone.

You're right, my mistake. Private Mortgage Insurance is not mandatory (PMI). Mortgage insurance is (MI).

Greg

It's not like it's an either/or situation. We're still doing other things on the investment side as well as going with the 15 year note. I'm just pessimistic about the future, and when I get into Cassandra mode, I see a future where the idea is to minimize expenses as well as investing. Some very squirrely things are going to start to happen with the financial markets when the Baby Boomers start to retire in large numbers. (Goal for us now is to get into long term rental property aince I'm thinking you could avoid the squirrels if you buy in the right location)

As for housing increases in my area 2004 is seen as a correction of sorts- it was an underpriced market before and now things are more in line with ther comprable areas. Realistically further appreciation is going to be in the 5-10% range the next couple years.

I'll agree with Jim and bow out too. I like the open forum becasue at least it is a place where ideas can be thrown around lightly. But to take financial wisdom from someone who doesn't knwoa thing about you is craziness. If I say something, that sounds good or sounds bad, or sounds incomplete; then I probably said it so you could formulate a question to ask your financial advisor and mortgage broker.

ie. I say you can 'skip' a payment. Jim doesn't fully agree. Go to your broker and ask about it. They know you best.

Just like everything else on this forum, you shouldn't take some random guys advice, no matter what the subject matter. Truth be told, most of us are over-opinionated loudmouths. Myself at the front of the line. I'll beleive in 810% seat tubes, that P3's aren't that great, that mac is better than PC, and that refinancing is great if it is truly no cost.

Ben out.

I'm with Cassandra on this one. It sure feels good to know that you own your home, so that if your situation takes a turn for the worse, all you need to do is pay insurance and taxes to keep a roof over the head.

By the way, it shouldn't be overlooked that you can get a 30-year mortgage and pay it off on a 15-year (or whatever) schedule you please, IF you have the discipline to do it. With the shorter amortization period, obviously, the discipline is imposed upon you. Just don't want anyone to infer that if they go with the 30 year because of their current financial situation, that they are stuck with it if things look up. Just make a habit of sending a monthly prepayment of principal to your lender and, voila, you just turned your 30 year mortgage into 15.

Sir:

You wrote:ie. I say you can 'skip' a payment. Jim doesn't fully agree. Go to your broker and ask about it. They know you best.


I am compelled to return to defend my words. I did not agree, nor did I counter your specific with one of my own. I simply indicated the scenario which you presented was a bit off. State specific consumer protection laws, the actual date of the closing, and the specific loan program, among other things, may have an effect on the timing of when the first payment is due on a refinanced mortgage. Let it rest okay?

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Train hard...race well.
www.jimmishler.com
"Jim, I happen to agree with you" DougStern