top 5 mortgage refinance misconceptions – dnj mortgage raleigh nc

October 2, 2009

confused2Today we’re going to review 5 of the most common excuses I hear from folks with high rates who are refusing to refinance. Why would I post a seemingly salesy blog like this?  Really it’s out of frustration.  I had a conversation this AM with my uncle and mortgage rates came up – apparently his 30yr fixed has a 7.75% rate  – which he is completely fine with.  During our conversation he provided me all sorts of facts on why it wouldn’t be wise for him to refinance; unfortunately for him, none of his facts were true.  After clearing up all his misconceived notions, I returned to the office and sent him an email with a cost analysis in it – I think now he’s completely changed his tune. I thought to myself  – “I should blog this…” – so I am.  – I know that this is not the easiest topic to wrap your head around, but it’s absolutely necessary to understand the basics so you’re not letting misinformation stop you from making smart financial decisions.

1.  The process takes too much time and is too much of a hassle.
I’m going to break this down into what, in my opinion, a realistic estimate of your time commitment should be.  The upfront document gathering should take 60min (more info in this post).  I would consider myself a semi-organized person, I don’t overdo it, but I would have no problem furnishing the requested items in a very short period, as most people could and do every day.  After you email or mail those items in, you’ll receive a loan application and disclosure package in the mail; signing and returning this package should take no longer than 30min.  After that – the only other time you’ll need to invest into the transaction is at the closing which can take anywhere from 30 to 45 min.  So, on the high side, we’re right at 2.25hrs of time you’re going to need to set aside for the process.  The other time killer to consider is your shopping technique.  The average person will contact 3-4 institutions (a bank, local credit union, and a broker or two) and then make their decision from the quotes provided.  The rates they receive will be pretty similar as will the cost of the transaction.  On the other end of the spectrum, you have the folks who miss out on the low rates because they spend 3-4 weeks comparing dozens of quotes from untold amounts of lenders.  The moral of the story, this can be as fast and easy as you make it – it should realistically consume no more than 5 hrs of your time even though it will take us 30 days to close your loan.

2.  It’s going to hurt my credit if I’m denied.
I’m faced with this comment/question quite a bit throughout the course of the month, the answer is no.  Although you’re supposed to keep your shopping period to 14days or less for multiple lender inquiries not to affect your score, just the act being denied does not affect your score.

3.  I’ll wait until rates are a bit lower.
Check out this graph that follows the 30yr fixed rate average over the last 5 years.  We’re at the orange marker, early January after the market crumbled is in pink.  How will the next few months or years look? We’re not sure but it does appear we’re on our way out of the trough we’re currently in.  30yrfixedpastfiveyears

4.  I don’t want to start my term all over again.
Your term, whether it’s a 30, 15, or 10, is really the maximum amount of time you have to pay back your balance.  With conforming loans, you don’t get penalized if you pay off your loan faster, and you’re really just being given more time to pay off the loan when you refinance for the same term loan.  The easiest way to explain this is to use a sample situation.  Let’s say Bob got a $200k loan at 6.75% when he bought his home 10 years ago.  He’s been paying his regular mortgage payments the entire time and he’s recently heard that rates are quite a bit lower so he’d like to refinance.  Bob’s current balance is right at $167k.  Assuming he’s just going to pay for the refinance out of pocket, his new loan will be for $167k at 5% for 30 years.  He still owes the exact same amount, is paying about $2900 less interest every year, but is under no obligation to keep the loan for the entire 30 years.  There are no pre-payment penalties for conforming loans. I noted in my previous post about paying extra each month – If Bob decides to keep paying his old payment, ie reinvesting his savings, he’ll pay off his loan in 17 years.

5.  It’s not worth it for me to refinance.
This really depends on how long you’re looking to stay in your home.  Moving in 4-5 years, most likely not – staying for awhile – take a closer look because you could be missing out.  Day after day I prove with hard numbers why and how refinancing into a lower rate or a different product can save people money.  The best example I have of this is when I showed my dentist how much he could save.  Mr. P knew that he wasn’t going anywhere in his home, had already remodeled his kitchen and basement, and was quite sure that he wasn’t going to be modifying his mortgage for the rest of his term – but still asked every now and again how rates were.  When they reached 4.75%, I emailed him the following cost/savings analysis.

55to475 By dropping him down .75%, he’s saving $1890 a year, and his savings start catching up to him 25 1/2 months after he shells out that $4k for the closing costs.  That small drop in rate saves him almost $82k worth of interest over the life of the loan.  Think it’s not worth it?  Why not let us prepare a cost/savings analysis before you decide.

DNJ Mortgage
1350 Sunday Dr
Raleigh NC 27604


what is a buydown and how can it save me money – ralegh nc

August 18, 2009

This is a partial re-blog of something my associate Cari DeCandia wrote.

There are two types of buy-down programs: temporary and permanent.

A permanent buy-down is where the borrower or seller pays discount points to the lender to have a lower interest rate for the term of the loan. Often a permanent buy-down does not make financial sense due to the amount of time needed in that loan to recoup the costs of the buy-down.

A temporary buy-down is where the borrower, seller, or lender pre-pays interest for the first one to three years in order to have a lower interest rate. The most common types of temporary buy-downs are:

3-2-1 buy-down
2-1 buy-down
1-0 buy-down

With a 3-2-1 buy-down…if your note rate is 6.5%, for the first year your interest rate would be 3.5%, 4.5% the second year, 5.5% the third year and 6.5% years four through thirty.

With a 2-1 buy-down…if your note rate if 6.5%, for the first year your interest rate would be 4.5%, 5.5% the second year and 6.5% for the remaining years in the term.

With a 1-0 buy-down…if your note rate is 6.5%, you would have an interest rate of 5.5% for the first year and 6.5% years two through thirty.

Temporary buy-downs have been most commonly used by sellers/ builders that are trying to entice buyers with lower than market interest rates for the first few years resulting in a lower monthly mortgage payment.

Why temporary buy-downs and the “No Closing Cost Loan” are perfect together?

If your loan amount is greater than $200,000, DNJ Mortgage has the ability to use the commission the bank pays us for originating the loan to pay for the buy-down cost as well as closing costs. This gives our customers a better than market interest rate at no cost to them. We can continue to refinance at no cost using a buy-down program to maintain the lower than market interest rate.

Example:Customer has a current loan amount of $250,000 with an interest rate of 6.625% on a 30 yr fixed. Current monthly payment is $1600.78.

Based on current market conditions we are able to offer them a no closing cost rate of 6.5% with a one year buy-down. This gives them an interest rate of 5.5% for the first year and then the loan converts to a 30 yr fixed at 6.5% after the first year. By refinancing at no cost, they received an interest savings of $2500 in just one year. At the end of the year, they have three options:

  1. Keep the loan and maintain the 6.5% interest rate.
  2. Refinance again with no closing costs into another one year buy-down.
  3. Refinance with no closing costs into a different loan product (ARM, 15 yr fixed, etc).

As you can see, using the no closing cost loan along with a temporary buy-down provides are customers with several benefits including:

  1. Lower than market interest rate at no cost them resulting in lower monthly payments.
  2. Increased interest savings.
  3. A hedge against higher interest rates during periods of economic strength.

DNJ Mortgage
1350 Sunday Dr
Raleigh, NC 27607

HERA – How it can affect your closing.

August 11, 2009

Another new item on the consumer protection front: HERA or the Home and Economic Recovery Act. The basic aim of this act is to make sure the borrowers are kept in the loop with regards to the mortgage transaction and really just forces better lending practices. The act came into effect at the end of July and many lenders have already put automatic solutions in place to insure they’re operating within the new guidelines. There are four basic guidelines, below you’ll find a brief outline of each.

  1. The closing date is now heavily influenced and often decided by the lender.
    ▪▪▪ Up until now, everyone worked together to meet an agreed upon closing date. But now, a closing date can still be decided and even included in the contract, but the earliest any purchase can close is 7 days after the borrower receives the initial mortgage disclosures from the lender institution.
  2. The lender cannot collect any up-front fees with the exception of the credit report fee.
    ▪▪ The borrower now has to physically receive the initial disclosures before any fees can be collected. Any overnight shipping of documents constitutes reception the next business day, with the exception of Saturday. Many brokers were requesting credit card information for appraisals but this is not allowed until the disclosures have been received. Unless the lender and the borrower are face to face when the application is taken and the disclosures are provided, no fees can be collected.
  3. The borrower must receive a copy of their appraisal no less than three (3) days before closing.
    ▪▪▪ The borrower does have an opportunity to waive this if they feel it’s not necessary
  4. Lastly – The APR caveat. Any increase in the APR more than 1/8th% or .125% from the original TIL (Truth in Lending disclosure) requires that the lender provide an updated TIL to the borrower along with a revision period.
    ▪▪▪ The borrower must receive an updated TIL no less than three (3) days before closing. If the lender mails the disclosure, after three days, it’s considered received. This is the heavy hitter for most mortgage professionals. Many figures during the transaction may change while the process is underway. The APR will be affected by changes in the loan amount, an altered closing date, a re-lock because of rate improvements, etc. This will force lenders to keep a sharp eye on the accuracy of all fees related to the transaction. Some folks say this is the part of the HERA that will eliminate the 30 day lock; indeed it has put a definite strain on the time-frame, but will ultimately force better practices across the industry.

DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607


How the new HVCC affects the Triangle

August 10, 2009
Last Friday I mentioned that I was going to post some information on the new HVCC or Home Value Code of Conduct – so here it goes.
The HVCC is designed to ensure that the appraisals that are done for purchases and refinances are done in a matter that they’re in no way influenced by any party involved. The broker will usually order the appraisal through the lender, the lender has a list of approved appraisers which it blindly chooses from, the appraiser makes the appointment with the borrower, and when complete, the broker and borrower are the last to see the estimated value of the home. Below are some more caveats:
  • The appraisal and selection of the appraiser will be ordered by someone not directly involved in the origination of the mortgage. This could be either someone else within the mortgage company or a third-party appraisal management company.
  • A copy of the appraisal must be provided to the home buyer/borrower no less than three days before closing.
  • The minimum time expectations for receipt of the appraisal should be a few weeks and not days. (While receipt of the appraisal may be received in shorter time frames, conservative expectations are warranted.)
  • Communication between the appraiser and the originating mortgage professional is prohibited. It is imperative that the agents involved in the transaction be prepared at the time of inspection to offer supporting value information if warranted.
Personally I think this is a good thing for consumers – it provides a fair appraisal of the property. Managing your long term financial goals requires accurate figures – how can you expect people to properly weigh the benefit of their equity if the appraised value is incorrect. More regulation was bound to emerge from this housing meltdown – we’re only at the beginning of the reform. Tomorrow I’ll make a few notes on the new TIL rules or the HERA – Housing and Economic Recovery Act. Please contact me if you’re having trouble working around the HVCC with other lenders – I’ll let you know how we use a combo of disclosures to keep people cool.
Rates were slightly down today – and moving in the right direction. Par is still around 5.25%.
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607

starting the refinance process

August 6, 2009

I feel like the most important part of the lending process that is often overlooked by loan officers and borrowers, is the beginning stages. The importance of being proactive and getting the required paperwork together and doing one’s due-diligence in providing accurate figures always facilitates a smooth process. Substantial daily and weekly rate shifts happen more often now than ever before. When looking for a mortgage professional that you’re comfortable with while keeping an eye on rates, taking some time to prepare and collect some required items could save you a huge headache. Most people have a good grip on the details of their mortgage, but there’s no substitute for having the exact figures. Below I’ve outlined some important steps to consider before you start shopping for a refinance quote.

Before you fill out a loan application online:

  1. Double check your last pay-stub to determine exactly how much per month you earn. Most folks could tell you exactly how much they bring home, but are you sure exactly how much you make every month before taxes? A $1000 difference between your actual income and your real gross income could skew your income calculations just enough to cause problems.
  2. Pull your latest mortgage statement out of your filing cabinet. An important figure we’ll need to consider is your current payoff amount or balance. Again, a few thousand dollar discrepancy may result in a quote that isn’t representative of the real cost of the transaction.
  3. We’ll also need an approximation of your home’s value. You can check this through your county’s web tax portal, or by checking the last tax statement you received. Wake County’s real estate tax info can be found here. These figures may or may not be completely representative of your real value if you’ve recently completed major upgrades or additions to your home. This is a pretty fair estimate of your current value but if you’re definitely in disagreeance, check out some recent home sales in the area and compare the square footage.
  4. Check and make sure the rate(s) you believe that you have are accurate. Most lenders, including our firm, provide you a comprehensive quote which details the savings you’ll realize through the refinance. If your real rate is different from the rate you provided, it may change the perceived benefit of the transaction.
  5. Consider high interest revolving debt that you may currently have. Consolidating some other debt while moving your loan to a lower interest rate may be a very practical and money saving move.

Paper work you’ll need to have:

  1. One month of pay stubs – showing pay for last 30 days.
  2. W2’s from the last two years.
  3. Homeowners insurance company name and contact #.
  4. Your most recent bank statement.
  5. Any recent retirement or investment account statement.

Preparation is the key to getting locked into a rate when it’s at a low point. Even if rates aren’t favorable at the moment, take some time with your mortgage professional and get everything ready to pull the trigger.


DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607