One of the first questions that are likely to come up is whether a 30 year fixed rate mortgage is right for you. Since this is the most popular choice for mortgages today, almost all consumers spend some time considering this option. There are several ways to tell if this type of mortgage is right for you:

1. Risk Free Mortgage: 30-year fixed rate mortgages are some of the safest mortgage options. Your fees, interest rate, and overall monthly payments are consistent. This makes a 30 year fixed rate mortgage a great choice for those who want no risk in their mortgage.
2. Long Term Finances: The value of a 30-year mortgage is in its longevity. If you are nearing retirement, or don’t have much debt, shorter options will allow you to have more financial freedom sooner than you might think. For those who are looking to pay down other debts or will be working for years to come, a 30-year mortgage will allow you the opportunity to take care of other financial stresses first, before worrying about full homeownership.
3. Long Term Living: If you are planning on living in your home for more than 8 years, chances are that a 30 year fixed rate mortgage can work for you. Whether it is the right decision will depend on the other above listed factors. It is clear, however, that those who plan to stick with their current home usually benefit from longer term loans.

Though the most recent drop in rates is small, only about .06% on a 30 year fixed rate mortgage, it makes me wonder if rates will continue to fall. According to the Mortgage Bankers Association’s weekly report, over 80% of all mortgage applications these days are for refinances. These consumers will be looking to find the best time to close. They will also be navigating tougher mortgage waters than ever before. Not only is there the question of when rates will bottom out, new standards imposed by large lenders means that you may end up paying more than you bargained for. This can leave a poor taste in your mouth if you aren’t ready for it.

Let’s Talk Fees

When it comes to those large lenders (Fannie and Freddie), there are all sorts of extra fees that you could be charged which would bring up the price of your loan or the interest rate. While Freddie Mac calls these extra closing costs post-settlement delivery fees, Fannie refers to them as loan level price adjustments. These fees are charged to consumers for a number of reasons:

• Credit Score: Even a credit score over 720 could be charged an extra .25% of the total loan in these extra fees.
• Loan-to-Value (LTV) Ratio: If you have a high LTV ratio (over 80%), you may be charged an extra premium.
• Housing Prices: Since housing prices have continued to stay low or even drop, some loans will have a small fee to compensate.

The list of possible fees you may be charged goes on. This is why many consumers today aren’t getting as good a deal as they hoped through a refinance. Avoid this problem by checking all your mortgage statistics first.

If the Obama Administration had loosened these standards, the door would once again be open to the problems which created the housing crisis in the first place. Now that refinancing has begun to rise on its own, I think we can all agree that letting the boom occur naturally was the right decision for homeowners and lenders alike.

So, who is doing all this refinancing?

With many homeowners struggling to make payments or dropping out of government modification programs, where is this boom coming from? The answer is likely those who have successfully modified loans or refinanced in the past 2 years. Also, those who have weathered the storm are now seeing their home values stabilized. These homeowners are looking to shorten their loan times and take advantage of extremely low interest rates. For those that haven’t thought about it, now is the time to look at saving money, shortening the length of your loan, and owning your home sooner than ever.

One of the issues that these homeowners want to know more about is how much will a refinance cost. They ask this either because they want to try and decide if refinancing will save them money in the long run, or because they don’t have a lot of cash on hand to cover thousands of dollars in closing costs. If you don’t have a lot of capital or aren’t planning on staying in your home for at least 5 years, you might want to think about looking at a no-cost mortgage.

What is a No-Cost Mortgage?

Our resident Mortgage Professor, Jack Guttentag explains that a No-Cost Mortgage “…is a mortgage on which the lender pays the borrower’s settlement costs, with certain exceptions. The lender won’t pay your tax escrows, homeowner’s insurance, or transaction taxes if there are any. You will also be stuck with paying interest on two loans for a few over-lapping days. All other costs, including the mortgage broker’s fee if there is one, are paid by the lender.”

Having the lender pay many of the closing costs doesn’t come without a price, however. The closing costs are added back into the loan increasing its size, and the interest rate is also increased. Of course, if your overall monthly payments decrease and you did not have the cash to cover the costs anyways, this type of refinance might be the best option for you. Also, for those that plan on selling their home soon, this type of refinance can mean lower monthly payments now without having to pay cash up front. Those who plan on living in their home for many years will want to look at more conventional refinancing options.

What’s the Difference between Fixed and Adjustable Rate Mortgages?

In a nutshell, it is the way the interest rate is calculated. A fixed rate mortgage (FRM) has a consistent interest rate that is agreed upon prior to the closing of the loan. An adjustable rate mortgage (ARM), on the other hand, has a floating interest rate. This means that your monthly payments will vary somewhat as the interest rate moves around with the market. The length of the terms is also different. FRMs tend to be spread over many years (usually 15 to 30), whereas ARMs typically have a cycle of 7 years or less.

What Makes ARMs Better Today?

Because of the risk involved with having an interest rate that moves with the market, the initial interest rates are much smaller than rates for FRMs from a given lender at the same time. Since no one is expecting interest rates to move much up or down in the coming months, choosing a loan that takes this into account is a good idea.

Right now we are looking at rates that have held relatively stable for the last 3 weeks. This means that those who began refinances about a month ago are probably getting ready to close. If you also locked your interest rate, you would still be happy with your decision. Even those who did not have found that today’s rates are what they had hoped for. Whether this stabilization will stick around, or if this is truly the bottom of interest rates this summer, are questions that only the coming weeks will answer. I do know that there are a lot of happy homeowners who decided to get involved and refinance sooner rather than later.

Is there a fast track to refinancing?

If you want to save the most money, you have to take the time to look at all your options. You also have to understand where you stand in the mortgage market. Though there isn’t a “fast track” to refinancing, checking your Mortgage Grade first can really help to set you on the right path.

Regulating something like appraisals isn’t easy. Every city is different and so is every appraiser. There are several things that these new laws will do for homeowners and homebuyers alike:

1. Trash the old Code of Conduct (HVCC) for appraisers that often caused more problems than it solved.
2. Standardize those who manage appraisers through new regulatory procedures.
3. Help to create a stronger base of independent appraisers.

These changes should help to make sure that your home is valued properly when you go to refinance. The largest lenders (Fannie, Freddie, and the FHA) have already incorporated these practices into their appraisal systems. This is pretty impressive for a law that has only been signed for five weeks.

The biggest change that consumers will notice is that the appraiser’s fee and the fee of the management company will be put on separate lines of your closing costs list. These new regulations should really help consumers to know what they are getting when it comes to the appraisal. Of course, when it comes time for the appraiser to look at your home, be sure to ask how long they have been doing the job and how many homes they’ve appraised in the area. Those are vital pieces of information when it comes to getting an accurate appraisal.

There are several aspects of your mortgage that you will need to consider to find out if a refinance or prepayment is the right option:

• Points Paid: If you paid points originally on your mortgage, then prepayment will raise your effective interest rate.
• Change the Term: Refinancing can significantly lower your term length. If this is your goal the result could be a much increased savings over prepayment. Of course, your monthly payments will also increase when you shorten your term.
• Count on Closing: Unlike prepayment, a refinance comes with a variety of closing costs. These should also be added with a refinance to determine which is best for you. Typically, the longer you expect to stay in your home, the more sense it makes to refinance.

With extremely low interest rates and a variety of options for homeowners with a high LTV (loan-to value) ratio, finding a refinance is not as hard as you might think. Unlike prepayment however, it will take extra time to organize as well as a lot more paperwork. Making the right choice will depend on how much you are looking to save in the long run.

1. 48% of the 1.3 billion homeowners who began the program back in March 2009 have dropped out.
2. To date, 32% of those who started the program have received modifications and are making their mortgage payments regularly.
3. The number of dropouts from the program has increased 40% from June to July.
4. Over 35,000 homeowners received long-term loan modifications in July.

When you look at the program as a whole, I think that it shows an accurate picture of the housing market right now. Some are finding their way, while many are falling to the wayside. The problem is that as foreclosures increase, home values will not improve and many will still find it hard to refinance.

So what do I do?

If you are seeking a refinance but having trouble applying successfully, you need to start by knowing where you’re at. The easiest way I know of to find out is by checking your Mortgage Grade. This way you will not only be able to tell when you are ready for a refinance, you will also be able to get advice on how to improve the loan you qualify for.

Here’s what the report showed:

• The number of refinance applications rose over 15% to the highest levels since mid May 2009.
• The number of purchase applications for new home loans dropped over 3%.
• While the average price for both 15 and 30 year fixed rate mortgages went up, those who chose 1 year ARMs (Adjustable Rate Mortgages) received lower rates last week.

Obviously the big story is the increase in refinance applications. As interest rates floated higher, more and more consumers began the process of refinancing. I think this is something that some may have waited too long to begin.

Refinancing today can take longer than ever because there are more checks required by lenders. They will need more man power to complete required fraud checks as well as double check several of your financial figures at the beginning and end of the refinance process. Even if you have already started the process of refinancing, keeping track of your personal mortgage situation with a tool like a Mortgage Grade is a good idea.