Like most of the good loan officers who are still in the business, I have been bombarded with phone calls from consumers looking to refinance over the past week. Always a day late and a dollar short, the media is reporting that mortgage rates are back at historic lows. I locked a number of borrowers at 5.375% over the past week with no points and no closing costs on thirty year fixed rate loans. However, given the number of calls I have taken, the number actually locked is relatively small.
The reality is that most people aren’t going to benefit from the ultra-low rates that are available and here is why:
Too Slow and Indecisive: The mortgage market is extremely volatile right now. Rates are changing multiple times in the day (usually for the worst). Last Tuesday, I could do 5.375% the first thing in the morning and by about noon, the market moved to 5.5 and then 5.625%. The bulk of the people who missed the opportunity did so because they had to “think about it…” C’Mon people. I am saving you $200 plus per month, not charging you a dime to do it and getting you a historically low thirty year fixed rate and you need to think about it??!! Discuss it with the wife?!
Second Mortgages: One of the insidious things that lenders are doing right now is refusing subordinations. When you have a second mortgage or home equity line of credit, that lender has to give you permission to refinance the first mortgage. In the past, this used to be no big deal. However, now that values are falling and second mortgage lenders bear most of the default risk, they are refusing to subordinate to a new first mortgage even if a refinance of the first mortgage is less risky than the original mortgage!! Very few lenders will subordinate a second mortgage if the combined loan-to-value is above 85%. I wrote about this practice earlier this year.
FICO Scores: Mortgage lenders love FICO scores. In fact, they love them so much these days that now you need a 740 or higher to qualify for the lowest rates available. In fact, if you have a 739, you are going to see your rate jump by at least .125%. Up to 1/2 percent higher or more if you have a 700 FICO or lower. That one late payment on the library book will cost you big time.
Expensive PMI: Private mortgage insurers bear the brunt of the loss when a home goes into foreclosure. Given the foreclosure records that have been broken, PMI companies have been losing their shirts. Now they are jacking up the cost of mortgage insurance. If you have a loan to value more than 80%, increased mortgage insurance costs may erode any savings from a lower interest rate.
Big Ass Loan: Otherwise known as Jumbo or non-conforming mortgages. In many cases, if you have a loan that is too big to sell to Fannie Mae or Freddie Mac (larger than $417k in Chicago), it is going to be much harder to find a good rate these days. Particularly, if you don’t have at least 25% equity in the property.
These gotcha’s can be overcome, however, it you need to make sure you are working with a knowledgeable professional. It is important that you talk in detail with your lender (hopefully me!) and really figure out how you can better position yourself to take advantage of the current low rates that are available. As I keep trying to tell people who keep putting off refinancing or buying a home, the risk isn’t if rates are going to be lower, the risk is will you actually qualify!
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