Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, sank 12.8 percent in the week ended November 29, even with adjustments for the Thanksgiving holiday weekend.
That is the fifth straight week applications have dropped.
In today’s post, we’ll look at the idea of refinancing without changing the remaining time left on the loan, and how mortgage offerings may start to change in 2014.
Mortgage Refinancing Without Resetting the Clock
Have you wanted to refinance but you’ve already paid a number of years down and don’t really want to have a 30 year mortgage again? Some mortgage lenders are now offering refinancing options that lower the interest rate while keeping the remainder of the term intact.
From AOL’s Real Estate Blog:
The original loan amount taken out in January 2009 is for $300,000 on a 30-year fixed-rate mortgage, with a 5.5 percent current balance of $282,000 and a mortgage payment of $1,703.37. The new loan on a 30-year mortgage at 4.375 percent on same principal balance of $282,000 means a new mortgage payment of $1,407.98. That’s a savings potential of $296 per month on a new 30-year mortgage.
A prudent consumer with stand to benefit by taking out the new 30-year mortgage over one full percentage point lower in interest in exchange for the savings just shy of $300 per month. By making the $1,703 monthly payment, rather than the payment of $1,407.98 that would actually be due each month, the loan would be paid off in 21.3 years instead of the current 26 years remaining with the higher interest rate. Moreover, this homeowner could always revert back to the lower monthly payment in case of financial hardship. As long as the same payment that was being made on the previous loan is made on the new loan that contains a lower monthly payment, the loan can be paid off much sooner.
Talk with your loan officer to understand the interest rates so you can compare apples to apples.
AOL listed some helpful tips for your refinance. Here are three of them:
- Verify that the total new loan amount is lower than your original balance (unless you’re cashing out or increasing the amount of the loan)
- The interest rate should be the same or lower than the rate on the loan currently being paid off.
- If pmi exists on the loan being paid off and the new loan contains a higher interest rate, the removal of the mortgage insurance greatly offsets even a slightly higher interest rate on the new refinance.
New mortgage rules may mean less choice
Beginning Jan. 10, banks have to ensure that monthly mortgage payments are affordable defined by the Dodd Frank law passed in 2010. The failure to do so carries strict penalties. Many small lenders may drop out of the business of providing mortgages due to the increased regulation and the overhead it carries.
Lenders will need to carefully determine that borrowers have the ability to repay their loans. Banks can no longer lend to anyone whose total debt payments would exceed 43% of their income. Lenders must carefully check pay statements, bank records, tax returns and other documents provided by the borrower.
Banks will need to:
- Update their their underwriting policies and procedures
- Change their technology
- Retrain staff
Some analysts feel that small banks are overstating the problem and shouldn’t have any difficulties staying competitive even with the new regulations.
Contact a reputable loan officer before 2014 to understand what you may be eligible for and how the changes may impact you if you choose to wait. The loan officers are diligent in staying on top of regulations and market offerings to help you get the best options for your situation.