Mortgages & Refinancing

30-year mortgage holds at record low - Mortgages - MarketWatch

CHICAGO (MarketWatch) — The average interest rate on the 30-year fixed-rate mortgage isn’t budging from its record low, holding at 3.87% for the third week in a row, according to Freddie Mac’s weekly survey of conforming mortgage rates.

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Mortgage Rates Drop, Applications Drop

Mortgage applications dropped last week, reflecting weaker demand for home purchase loans even as interest rates fell, an industry trade group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, dipped 0.2% the week ended Feb. 2 to 630.1.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.23% in the latest week, down 0.06 percentage point from the previous week and the first drop since early January.

Interest rates were slightly below the average of 6.25% in the same week last year.

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, fell 0.8% to 404.7. The index was below its year-ago level of 425.1, a fall of 4.8%

Mortgage frenzy puts homeowners at risk

WASHINGTON (MarketWatch) -- More than a year after Alan Greenspan warned of the "potential for individual disaster" from a new breed of mortgages that were helping to fuel the housing boom, federal regulators finally are trying to do something about it.

On Friday, in a jointly crafted message on so-called exotic mortgages, multiple government agencies warned banks in strong terms to make sure borrowers can pay back the full amount of what they borrow and that homeowners know that a low monthly payment today could be shockingly high later.
America's real-estate boom may be over now, but millions of homeowners who thought they were borrowing their way into wealth find themselves instead holding a ticking time bomb, a toxic mortgage with a potential payment far larger than they can afford.....

Exotic mortgages are most popular in the metropolitan areas that saw the biggest price gains from 2003 through 2005. They allowed ordinary families to bid up the prices of ordinary homes to nearly $400,000 in Miami; nearly $500,000 in Bridgeport, Conn.; $600,000 in Orange County, Calif., and more than $700,000 in San Jose and San Francisco.

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Is This How the Real Estate Boom Ends?

reprinted from abc

These prices are crazy, you think as you scan the local real estate listings. How can anyone afford to buy a house in this market?

That's a question a lot of home buyers are asking themselves these days, and a growing number are coming up with the same answer: Skip the 30-year fixed-rate mortgage and grab a riskier loan with a lower initial payment.

Interest-only, option-payment, 40-year fixed, piggy-back loan, low-doc loan: These weird mortgages come in an assortment of names and flavors, but they all have the same goal -- to help you afford an expensive home. How? More often than not by letting you put off paying down your mortgage.

A few years ago, so-called "nontraditional" mortgages were a mere sliver of the market (less than 3 percent by some estimates); a July survey by the mortgages Federal Reserve found that they now account for more than a quarter of new business at a third of the nation's largest home lenders.

That swift rise has industry observers worried.

"We're very concerned with how safe these products are," says Stu Feldstein, president of financial research firm SMR Research. "There's an awful lot of risk out there."

But who's at risk? Almost everyone. If you're a buyer, the risk is that you'll find yourself with a loan you won't be able to afford in a few years. But even if you're among the 75 percent of borrowers with a stodgy fixed-rate loan or the lucky 35 percent of homeowners with no mortgage at all, this loan lunacy could pose a danger to your home's value.

That's because experts fear that the rash of nontraditional loans has been driving up prices in many markets -- and could intensify the decline if prices soften.

"I think the creative mortgage structures have been the last puff on the real estate balloon," says Nick Buss, vice president of market research at PNC Finance. "Consumers were already stretched, and these products have stretched them just a little bit further."

Piggyback Loans

  A piggyback loan is a combination of a first and second mortgage closed at the same time. Often involving 100 percent financing, the first mortgage loan can cover 80 percent of the cost of the home with a ‘piggyback’ second mortgage valued at the remaining 20 percent.

The most common type, however, is the 80-10-10 in which the second mortgage product accounts for 10 percent of the purchase price and the borrower invests 10 percent as a down payment on the loan.

Although the second mortgage carries a higher rate than the first mortgage and extends for a shorter term, the advantage of the piggyback mortgage is that the interest expense is potentially tax-deductible while the mortgage insurance payment (typically required for loans exceeding 80 percent of the home’s value) is not.

According to a survey by the National Association of Realtors, 25 percent of all homebuyers financed 100 percent of the purchase price of their home. Forty-two percent of first-time homebuyers bought with no money down.

Private Mortgage Insurance Can be Cheaper Than Piggyback Loans

The cost of mortgage insurance (PMI) varies depending on the size of the down payment and the borrower's credit history. PMI can be expensive so the mortgage industry created a way around it:  piggyback loans. With a piggyback loan, the borrower splits the home loan in pices: a primary mortgage for 80 percent, and then a home equity loan or credit line for 20 percent minus the down payment. Structuring a loan this way eliminates the need for mortgage insurance.

A couple of years ago, when you could get a home equity line of credit at 4 percent or 5 percent, piggyback loans were almost always cheaper for the consumer. But now the average line of credit is slightly more than 8 percent, and the average home equity loan is just under 8 percent. And rates on credit lines and equity loans usually run a little higher on piggyback loans.

Bottom line: Piggyback loans have higher monthly payments than they used to have, while mortgage insurance costs the same.  Be sure and ask your lender to work out the details to see which is a better option for you.

Mortgage applications at four-year low

WASHINGTON (MarketWatch) -- Applications for mortgage loans at U.S. banks dropped by 6.7% last week to the lowest level seen on a seasonally adjusted basis since May 2002, the Mortgage Bankers Association said Wednesday.
The number of mortgage applications was down 31% compared with a year ago.
Applications for mortgages to purchase homes fell a seasonally adjusted 6.2%, hitting the lowest level since November 2003. Purchase applications are down 19% in the past year.
The MBA's purchase index is expected to decline another 20% or so, said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
Applications for refinancing loans fell 7.5% on a seasonally adjusted basis. Refinance applications are down about 47% in the past year.
The decline in purchase applications has been much steeper than the recent drop in U.S. home sales. New-home sales have sunk about 6% in the past year, while sales of existing homes are down about 7%. See full story.
The slowdown in home sales "has the potential to translate into a hard landing for the economy because the housing sector has played a major role in the current expansion," said Asha Bangalore, an economist for Northern Trust.

Refinancings accounted for 35.3% of total applications, down from 35.5% in the prior week, the MBA's survey data showed. At the peak of the refinance boom in 2003, refinancings accounted for more than 80% of applications.
Adjustable-rate loans accounted for 29.1% of applications, down from 29.6% last week. In March 2005, ARMs accounted for just over 36% of applications.
The average rate for a 30-year fixed loan rose to 6.86% from 6.73% on a week-to-week basis; it's the highest rate since April 2002. Similarly, the rate for a 15-year fixed averaged 6.49% vs. 6.37% last week; it's the highest since April 2002.
One-year ARMs averaged 6.36%, up from 6.22%; it's the highest since February 2001.
Meanwhile, the spread between the rate on a one-year ARM and a 30-year fixed mortgage dropped to 50 basis points, one of the narrowest in the past five years. A narrow spread means buyers cannot reduce their monthly payment very much by choosing an adjustable-rate loan.

What is involved in Refinancing a Mortgage?

When you refinance, you pay off an existing mortgage and take out a new one. An important factor in deciding if you should refinance your mortgage is understanding just what’s involved in the process, the costs and fees you’ll have to pay, and how long it will take you to recover those costs.

When you refinance, you generally will repeat many of the same steps, provide the same information, and encounter the same types of costs that were involved the first time around. The lender’s decision whether to approve your loan application will be determined by an evaluation of: 

• Your financial situation and credit history (since this helps the lender assess your ability and willingness to repay the debt).
• Property value (based on current market value and how much your home is worth).
• The amount of equity in your home (the difference between the fair market value of your home and the amount you still owe on your mortgage).

Home Mortgages

Mortgage rates will rise and local home prices will fall in 2006, according to an industry forecast. While this may not be the best news for people trying to sell homes, it may mean some relief for renters.
Mortgage rates are expected to reach an average of about 7 percent for 30-year fixed rate mortgages, said John Marcell, president of the California Association of Mortgage Brokers.

Also, more people will likely opt for the 40-year fixed rate mortgage to save on their monthly payments, he said.  Home equity will likely

Refinance Mortgage - typical costs

When you refinance your mortgage, you usually pay off your original mortgage and sign a new loan. With a new loan, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees. You also may be charged a penalty for paying off your original loan early, although some states prohibit this. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required to obtain a loan. To obtain the lowest rate offered, most mortgage companies will charge several points, and the total cost can run between three and six percent of the total amount you borrow. So, for example, on a $100,000 mortgage, the company might charge you between $3,000 and $6,000. However, some companies may offer zero points at a higher interest rate, which may significantly reduce your initial costs, although your payments may be somewhat higher.